Post on 09-Oct-2020
transcript
The Banking and Corporate Finance Training Specialist
Advanced Private Equity &
Leveraged Buy-outs
A comprehensive examination of PE – reviewing the 3 stages from
PE, lender, advisors, management and investor’s perspective
This course is presented in London on:
12-14 November 2018, 11-13 February 2019, 24-26 June 2019, 4-6 November 2019
This course can also be presented in-house for your company
or via live on-line webinar
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
Course Overview
Participants will: Be introduced to the PE value creation model and PE fund structures Get an overview of the acquisition: adding value and reducing the risk at entry
Have explained to them how to select the right investment with the 5 critical issues to sponsors
Master how to negotiate the deal with the management team Gain an understanding of the key issues for sponsors and management
Learn about the financing options for private equity houses Be appraised of the key issues for senior debt Be taught about how to negotiate the optimum debt package (including lender and
borrower approaches) Have an overview on the different debt instruments – mezzanine, unitranche, second
lien, PIK loans and high yield notes
Day 1 Introduction to Private Equity: The PE value creation model; PE fund structures
Introduction & background
Overview of the PE market Venture capital
PE / leveraged deals The three stages of the deal
Entry, operations & exit The traditional PE value creation model – the 3 key value drivers Techniques for enhancing returns
Capital structure’s impact on value Using soft exits recaps / refinancings
Equity bridges Leveraging the fund
Structuring issues & structuring parameters
Structuring issues Taking security / collateral generally
Security contrasted: UK vs Europe vs USA Financial assistance Ranking & priority of senior vs junior debt & pari passu loan/bond structures
Tax issues - group tax relief & thin cap Squeeze-outs
Spectrum of financing instruments in LBOs - overview Structuring parameters - creating an appropriate financial structure (overview)
Percentage senior, junior and equity in debt capital structure
EBITDA multiples Target returns for Private Equity & mezzanine funds
Deriving the funding structure Funding uses Funding sources
Structure and key terms and trends for Private Equity funds
Course Objectives
Course Content
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Review of typical (Luxco) fund structure Key terms & conditions Investment period (how long)
Preferred return (rate, calculation) Carry (European vs US approach)
How Private Equity fund structures optimise value Hot topics for LPs & GPs
Generating and originating deal flow Why proprietary origination matters Deal sourcing strategies
What makes a good originator What motivates intermediaries
What motivates target’s / sellers How the “right type” of specialisation can boost returns Three ways to use networks
Identifying “exit signals” from various sources Why & how social media matters
Case Study: Calculating the entry and exit value, the funding sources, the basic approach to deriving the equity split between PE and management on entry and
exit and introduction to estimating the correct capital structure
The Acquisition: adding value & reducing risk at entry The acquisition - offer structure
Offer structure – cash free, debt free with normalised working capital/net asset value etc
Risk matrix - analysis of the five key value drivers / areas for due diligence Cash & trapped cash Debt – what’s included?
Working capital (key to the deal?) Capex
EBITDA (the good news & bad) Establishing the run rate
Value matrix – techniques for mitigating the risks and identifying value SPA structuring - Locked box vs Completion accounts
Pros & cons of each
How it can affect value Risk in Locked box
Day 2
Case Study: Identifying problematic items in reconciling equity value to enterprise value and the correct approach to calculating the correct level of
working capital Adding value during the operational stage
Selecting the right investment - the 5 critical issues to sponsors
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Portfolio fit
The business model Management - what PEs approach Approach to generating value/returns
Exits – hard vs. soft How to avoid the value trap
Case Study: Calculate the exit value and discuss how structuring the PE equity can affect the returns of management
Adding value: operating partner models
The new value-creation model – 4 key areas Operational improvements – 6 aspects
7 Methods PE can add value via teaming up with executives The operating partner model (3 approaches) The operating partner model in practice – “typical” role
Liquidity events
Hard exits vs soft exits Exit strategies – using dual or triple track to enhance value IPOs
The key ingredients for IPO What about the management – problem areas
Sale of equity – partial vs complete sale Problem areas – trade vs secondary PE deals
Soft exits – a useful way of enhancing returns
Refinancings & recaps Other ways of extracting value
Management and other fees Case Study: Discuss the pros and cons of a dual/triple track exit strategy and
the key issues to both the PE and management
Negotiating the deal with management team: Key issues for Sponsors
Structuring the equity Structure - loans, preference shares
Typical returns Structuring the payment waterfall
Issues for management
Differences in primary and secondary deals Equity ratchets
Rationale, structure Pros and cons of positive vs. negative, stepped vs. linear
Key issues for Management Multifaceted role and duties of management
Issues vis-à-vis role as director, employee, shareholder, warrantor Key documents & terms
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Shareholders’ agreement vs articles/ statues (pros & cons) Critical issues in the investment agreement
Good vs. bad leaver Management warranties Equity – valuation issues pre exit (why “fair value” is dangerous)
Transfer issues – drag, tag-along rights Critical issues in the service agreement
Restraints Termination
Financing options for PEs
Introduction & overview of the funding spectrum The spectrum of financing options for borrowers Review of typical debt structures in the market for all deals sizes
Senior only Senior/ junior structures
Pari loan bond structures Loans vs Bonds – whats the difference (maintenance vs incurrence covenants)
Senior loans: key facilities & issues “Typical” terms
The main facilities RCFs – why they matter & typical pitfalls Capex facilities
Margin ratchets
Mezzanine key terms
Is there still a market for mezzanine Pros and cons Use an application
Rationale of warranted vs. warrant-less “Typical” terms
Unitranche / direct lending financing Review of the various market structures
“Typical” terms Pros and cons
Use and application – where they work and where they don't Second lien loans
“Typical” terms Pros and cons
Use and application PIK loans (making a comeback)
“Typical” terms Why has the PIK market spring to life
Pros and cons for sponsors
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Use and application Day 3
High Yield Notes
Spectrum of instruments Pros & cons of high yield and why they appeal to borrowers Use and application
Loans vs bonds compared Loans’ maintenance covenants vs Bonds’ Incurrence covenants
Case Study: Reviewing a capital structure and how different instruments can be used to optimise the capital structure, provide more head room and handle
capex
Negotiating the optimum debt package - Lender’s vs Borrowers Negotiating the debt package - The lender’s approach
The Lender’s approach to credit decision measuring debt capacity
security over assets exit routes
Different types of lenders: Banks vs Alternative lenders Whats the difference How and where it matters
Overview of loan documentation and impact on deal Loan as a radar system
Typical structure Key parties (obligors, borrowers and guarantors)
Negotiating the debt package - The borrower’s approach The four deal scenarios and the role of due diligence
The key financial ratios / covenants Cash flow cover Leverage
Interest cover Capex
Selecting the appropriate covenant for the deal; borrowers v lenders Do covenants really matter - if so how, when & where
Step 1: How to identify the borrower’s objective
Step 2: Identifying the key requirements for the borrower Step 3: Deciding on which type of debt & lender is most appropriate
Loans v bonds When and where to use junior debt
Step 4: Strategies for negotiating with lenders
Step 5: Getting what you paid for Inter-creditor issues – review of key issues
Case Study: Calculate the exit value and discuss how structuring the PE equity can affect the returns of management
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The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and restructuring. He is a senior consultant with Debt Xplained, with Grant Thornton UK
(Debt Advisory) and is also a Senior Advisor to KPMG Finland. He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides training to a wide
range of clients on a bespoke in-house basis & publicly through Redcliffe Training Associates. Additionally, he is the Programme Director for the infrastructure/project
finance module for the MBA programme at the Cass Business School in London.
The programme will review the impact of the draft ECB guidance on leveraged transactions.
This programme provides participants with a comprehensive view of private equity, particularly the various types of buy-outs (e.g. LBOs, MBOS). The programme takes
participants through all the major stages of the deal; from entry, through the operational phase to exit (liquidity events). In doing this the course provides insight into how the PE firm can add value to the process at each of the three major stages. To do this it
approaches PE from the respective perspective of all the main protagonists; Private equity professionals, lenders and other providers of debt financing; the various
professional advisers (lawyers, accountants in due diligence or audit), corporate finance advisors and management teams looking to enter or exit the market. It will also appeal to investors who may wish to invest directly (co-invest) or indirectly (via funds) in
different parts of the debt or equity capital structure, such as pension funds, insurance companies, private family offices and corporates who are trying to understand the
radically different business model of their PE competitors
Whilst simple in theory private equity, the highly competitive nature of the PE market
means that adding value can no longer be achieved by leverage and reliance on rising markets. The course covers the three key stages of PE value creation. Stage 1; the
acquisition, where it is vital to structure the transaction in the optimal fashion in terms of both the Offer to minimize risk. Disastrous mistakes can be made ab initio by failing to understand the main risk areas of the equity bridge (i.e. the value traps from enterprise
value to equity value) or in the completion method (e.g. locked box rather than completion accounts). Developing the optimal capital structure is a critical as it is
essential to use both the correct level of debt for and the most appropriate type of debt that will allow the company to achieve its business plan (e.g. organic growth or buy and build).
The second stage requires the PE firm to add value during the operational phase and here
there is much the PE firm can do in terms focusing on operation improvements. These do not occur in a vacuum and require the best management team. Top quartile PE firms
have large in-house teams to assist them in the process but smaller firms can achieve the same results through different “operating partner” models. In the current seller friendly environment, deal origination is another key point of differentiation between top quartile
teams and the course reviews various ways of approaching this issue
The third and final stage relates to liquidity events however PEs have the luxury in the current market of opting for soft as well as hard exits to generate value for LPs.
Background of the Trainer
Course Summary
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The programme adopts a pan-European approach to the topic but the presenter has experience of PE in other jurisdictions including, USA, Asia Pacific and Africa. Reference
will be made to current trends and data in the markets across Europe.
Participants will be provided with numerous case studies to reinforce the various aspects and will also be provided with an LBO model which will be used to structure a transaction.
Post the course participants will receive a number of other PE related models (e.g. how to calculate warrants and ratchets) as well as current review of debt trends in the debt market.
What Redcliffe’s clients are saying about the course and our trainers
“Practical approached combined with a great Trainer”
-- Senior Associate, KPMG
“Case studies and build-up of the models were good” -- Associate Director, Barings
“Highlighting theory as well as practice was good” -- Investment Associate, Bridgepoint
“ Experienced teacher, interesting topics” -- Skandinaviska Enskilda Banken AB
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
09:30-17:00
London
Standard Price: £1,800 +VAT Membership Price: £1,440 + VAT
In-House Training
Delivering this course in-house for a number of participants could be very cost effective.
The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the
precise contents of the seminar.
Tailored Learning
All of our training courses can be tailored to suit your company’s exact training needs.
We will work closely with you to help develop a training programme with content that is unique for your
organisation.
Please email us on enquiries@redcliffetraining.co.uk for more information
E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact
requirements.