Post on 18-Jul-2020
transcript
The Banking and Corporate Finance Training Specialist
Advanced Structuring of LBOs &
Private Equity Transactions Masterclass
A 5-day Master-Class A comprehensive examination of PE – reviewing the 5 stages from PE, lender,
advisors, management and investor’s perspective
This course is presented in London on: 12-16 November 2018, 11-15 February 2019, 24-28 June 2019,
4-8 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 Learn about the LBO Market and the effect of leveraged on the value of a business Get an overview of the LBO process, including how to determine the capital structure
and assess the value creation. Have explained to them how to value the target by sourcing information, building a
DCF valution and comparing and contrasting DCF and the LBO model structure Master the key elements of an LBO model including debt waterfalls Gain an understanding of the debt capacity for LBO financing
Learn about the capital providers and their typical characteristics Analyse value creation in a transaction
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.
Day 1 - Advanced Private Equity & Leveraged Buy-Outs
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
Course Objectives
Course Content
Background of the Trainer
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
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 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
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
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 - Advanced Private Equity & Leveraged Buy-Outs
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 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
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
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
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
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
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 Use and application
Day 3 - Advanced Private Equity & Leveraged Buy-Outs
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
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
Loan as a radar system Typical structure Key parties (obligors, borrowers and guarantors)
Case Study: Review a detailed term sheet for a senior loan, identify the key
commercial aspects and how and where it should be amended to make it borrower / lender friendly
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 Days 4 & 5 - Advanced LBO Modelling
Leverage Overview
Background to the LBO market Introductory theory - The effect of leverage on firm value
Valuing the target Sourcing information – Historic and forecast data Analysing equity research
Key attributes of broker analysis Pluses and minuses of equity research
Building a DCF valuation using equity research Modelling the stand alone valuation
DCF valuation
Use of multiples in valuation (EV/EBIT, EV/EBITDA) Case Study I: Participants model the stand alone valuation of the target using
historic data and equity research
LBO Modelling Overview
Key elements of an LBO model Comparing and contrasting DCF and LBO models
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
Sources and uses of funds Key drivers in an LBO model
From stand alone valuation to LBO analysis
Case Study II: Participants use the stand alone valuation of the target to
complete an LBO model
Assessing debt capacity for LBO financing Financial interdependencies
Financing growth Sustainable debt Target debt capacity assumed in a WACC calculation, debt capacity and interest cover
Debt capacity in LBOs Debt capacity multiples in practice and credit analysis
Case Study III: Modelling the debt capacity of the target using multiple and credit analysis
Capital providers and their typical characteristics
Institutional and management equity Traditional/new lenders
Senior tranche profiles A, B, C, RCF
Subordinated tranche profiles
Second lien Mezzanine (with/without warrants)
PIK High yield bonds
More complex issues – warrants and options
Typical LBO transaction sensitivity analysis, management, base and payout cases
Case Study IV: Modelling a more complex capital structure with various
scenarios calculating exit value and IRR for each of the capital providers
Assessing value creation in LBO transactions – APV analysis and dividend recaps
Key components of an APV valuation Unlevered value
Value of the tax shield Direct and indirect cost of leverage
APV valuation and DCF valuation APV valuation in a steady state
Calculating AP in a steady growth environment Incorporating APV analysis in an LBO transaction analysis Sustaining returns via a dividend recap
Case Study V: Where has value been created, modelling APV analysis and dividend recap for an LBO transaction
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
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.
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.
Course Summary
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
The fourth and fifth day of the course covers the key elements of modelling in an LBO analysis. Participants will value the target business using historic data and available equity research. The valuation process will incorporate absolute and relative valuation techniques.
Once the target business has been valued, participants will be introduced to LBO analysis and construct an LBO model. The LBO modelling analysis will be developed by assessing
the debt capacity of the business to determine the range of capital structures available for the transaction and how credit analysis is used in the LBO modelling process.
The participants will then cover more complex LBO instruments such as warrants and PIKs, how they can be incorporated into an LBO structure and how to calculate returns to each
of the equity and debt providers. Participants will model a more complex capital structure and calculate exit values and the IRRs generated by each investor. Using the integrated
model participants will then analyse various scenarios (management case, base case, payout case) to derive the optimum financing structure taking into account the financial constraints of each investor.
The participants will then undertake an adjusted present value (“APV”) analysis to
determine where value has been created in the LBO transaction using an APV model and finally look at a recovery analysis for a failed LBO transaction.
Case Study: The participants will use a variety of case studies and exercises during the two days, based on publically quoted and generic companies.
Participants will be required to bring a laptop and a calculator to the course
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
What Redcliffe’s clients are saying about the course:
“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
Great presentation! Very Good!” -- Head of European Portfolio Operations, The Blackstone Group
http://redcliffetraining.com enquiries@redcliffetraining.co.uk
+44 (0)20 7387 4484
09:30-17:00
London
Standard Price: £3000 +VAT Membership Price: £2400 + 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.