Chapter-14收購、兼并和重組課后題目教學課件解析

1、HIGHLY LEVERAGED TRANSACTIONS:LBO Valuation and Modeling Basics第1頁，共27頁。A billion here and a billion there soon adds up to real money. Everett Dirksen第2頁，共27頁。Exhibit 1: Course Layout: Mergers, Acquisitions, and Other Restructuring ActivitiesPart IV: Deal Structuring and FinancingPart II: M&A Proces

2、sPart I: M&A EnvironmentCh. 11: Payment and Legal ConsiderationsCh. 7: Discounted Cash Flow ValuationCh. 9: Financial Modeling TechniquesCh. 6: M&A Postclosing IntegrationCh. 4: Business and Acquisition PlansCh. 5: Search through Closing ActivitiesPart V: Alternative Business and Restructuring Strat

3、egies Ch. 12: Accounting & Tax ConsiderationsCh. 15: Business AlliancesCh. 16: Divestitures, Spin-Offs, Split-Offs, and Equity Carve-OutsCh. 17: Bankruptcy and LiquidationCh. 2: Regulatory ConsiderationsCh. 1: Motivations for M&APart III: M&A Valuation and Modeling Ch. 3: Takeover Tactics, Defenses,

4、 and Corporate GovernanceCh. 13: Financing the Deal Ch. 8: Relative Valuation MethodologiesCh. 18: Cross-Border TransactionsCh. 14: Valuing Highly Leveraged Transactions Ch. 10: Private Company Valuation第3頁，共27頁。Learning ObjectivesPrimary Learning Objective: To provide students with a knowledge of a

5、lternative approaches to valuing leveraged buyouts and the basics of LBO modeling techniquesSecondary Learning Objectives: To provide students with a knowledge of Cost of capital approach to valuation;Adjusted present value approach to valuation;The advantages and disadvantages of each valuation app

6、roach; and The underpinnings of LBO structuring and valuation models第4頁，共27頁。Valuing LBOsA leveraged buyout can be evaluated from the perspective of common equity investors or of all investors and lendersFrom common equity investors perspective, NPV = PVFCFE IEQ 0 Where NPV = Net present value PVFCF

7、E = Present value of free cash flows to common equity investors IEQ = The value of common equityFrom investors and lenders perspective,NPV = PVFCFF ITC 0 Where PVFCFF = Present value of free cash flows to the firm ITC = Total investment or the value of total capital including common and preferred st

8、ock and all debt.第5頁，共27頁。Decision RulesLBOs make sense from viewpoint of investors and lenders if PV of free cash flows to the firm is to the total investment consisting of debt and common and preferred equityHowever, a LBO can make sense to common equity investors but not to other investors and le

9、nders. The market value of debt and preferred stock held before the transaction may decline due to a perceived reduction in the firms ability toRepay such debt as the firm assumes substantial amounts of new debt and toPay interest and dividends on a timely basis.第6頁，共27頁。Valuing LBOs: Cost of Capita

10、l Method1Adjusts for the varying level of risk as the firms total debt is repaid.Step 1: Project annual cash flows until target D/E achievedStep 2: Project debt-to-equity ratiosStep 3: Calculate terminal valueStep 4: Adjust discount rate to reflect changing riskStep 5: Determine if deal makes sense1

11、Also known as the variable risk method.第7頁，共27頁。Cost of Capital Method: Step 1 Project annual cash flows until target D/E ratio achievedTarget D/E is the level of debt relative to equity at whichThe firm will have to resume payment of taxes andThe amount of leverage is likely to be acceptable to IPO

12、 investors or strategic buyers (often the prevailing industry average)第8頁，共27頁。Cost of Capital Method: Step 2Project annual debt-to-equity ratiosThe decline in D/E reflects The known debt repayment schedule and The projected growth in the market value of shareholders equity (assumed to grow at the s

13、ame rate as net income)第9頁，共27頁。Cost of Capital Method: Step 3Calculate terminal value of projected cash flow to equity investors (TVE) at time t, (i.e., the year in which the initial investors choose to exit the business).TVE represents PV of the dollar proceeds available to the firm through an IPO

14、 or sale to a strategic buyer at time t.第10頁，共27頁。Cost of Capital Method: Step 4Adjust the discount rate to reflect changing risk.The firms cost of equity will decline over time as debt is repaid and equity grows, thereby reducing the leveraged . Estimate the firms as follows:FL1 = IUL1(1 + (D/E)F1(

15、1-tF) where FL1 = Firms levered beta in period 1 IUL1 = Industrys unlevered beta in period 1 = IL1/(1+(D/E)I1(1- tI) IL1 = Industrys levered beta in period 1 (D/E)I1 = Industrys debt-to-equity ratio in period 1 tI = Industrys marginal tax rate in period 1 (D/E)F1 = Firms debt-to-equity ratio in peri

16、od 1 tF = Firms marginal tax rate in period 1Recalculate each successive periods with the D/E ratio for that period; and, using that periods , recalculate the firms cost of equity for that period. 第11頁，共27頁。Cost of Capital Method: Step 5Determine if deal makes senseDoes the PV of free cash flows to

17、equity investors (including the terminal value) equal or exceed the equity investment including transaction-related fees?第12頁，共27頁。Evaluating the Cost of Capital MethodAdvantages:Adjusts the discount rate to reflect diminishing risk as the debt-to-total capital ratio declinesTakes into account that

18、the deal may make sense for common equity investors but not for lenders or preferred shareholdersDisadvantage: Calculations more burdensome than Adjusted Present Value Method第13頁，共27頁。Cost of Capital Method: An Illustration Present Value of Equity Cash Flow Using the Cost of Capital Method (CC)Assum

19、ptions20122013201420152016201720182019Market Value of 12% PIK Preferred Equity ($ Million)2224.627.630.934.638.843.448.6Market Value of CommonEquity ($ Million)5.0Equity ($ Million)2527.030.934.939.6Debt ($ Million)4739.531.523.82.7Comparable Firm Price/Earn

20、ings Ratio 6 Levered Beta ()2.4 Debt/Equity Ratio0.3 Unlevered Beta2.0Marginal Tax Rate0.410-Year Treasury Bond Rate0.05Risk Premium on Stocks (%)0.055Terminal Period Growth Rate (%)0.045Terminal Period Cost of Equity (%)0.10YearDebt/ EquityLeveraged BetaCost of Equity Cumulative Discount FactorAdju

21、sted Equity Cash FlowPV of Adjusted Equity Cash Flow20601/(1.26) = 0.7937.3.320141.03.30.2301/(1.26)(1.23) = 0.6452.2.120081/(1.26)(1.23)(1.208) = 0.53411.81.020941/(1.26)(1.23)(1.208)(1.194) = 0.44747.43.320841/(1.26)(1.23)(1.208)(1.194)(1.184) = 0.37787.

22、72.920741/(1.26)(1.23)(1.208)(1.194)(1.184)(1.174) = 0.32188.12.620190.02.10.1651/(1.26)(1.23)(1.208)(1.194)(1.184)(1.174)(1.165) = 0.27628.52.4PV(20132019)12.5Terminal Value44.7Total PV57.2第14頁，共27頁。Valuing LBOs: Adjusted Present Value Method (APV)Separates the value of the firm into (a)

23、 its value as if it were debt free and (b) the value of tax savings due to interest expense.Step 1: Project annual free cash flows to equity investors and interest tax savings.Step 2: Value the target without the effects of debt financing and discount projected free cash flows at the firms estimated

24、 unlevered cost of equity.Step 3: Estimate the present value of the firms tax savings discounted at the firms estimated unlevered cost of equity. Step 4: Add the present value of the firm without debt and the present value of tax savings to calculate the present value of the firm including tax benef

25、its.Step 5: Determine if the deal makes sense.第15頁，共27頁。APV Method: Step 1 Project annual free cash flows to equity investors and interest tax savings for the period during which the firms capital structure is changing.Interest tax savings = INT x t, where INT and t are the firms annual interest exp

26、ense on new debt and the marginal tax rate, respectivelyDuring the terminal period, the cash flows are expected to grow at a constant rate and the capital structure is expected to remain unchanged第16頁，共27頁。APV Method: Step 2Value target without the effects of debt financing and discount projected ca

27、sh flows at the firms unlevered cost of equity.Apply the unlevered cost of equity for the period during which the capital structure is changing.Apply the weighted average cost of capital for the terminal period using the proportions of debt and equity that make up the firms capital structure in the

28、final year of the period during which the structure is changing.第17頁，共27頁。APV Method: Step 3Estimate the present value of the firms annual interest tax savings.Discount the tax savings at the firms unlevered cost of equityCalculate PV for annual forecast period only, excluding a terminal value, sinc

29、e the firm is sold and any subsequent tax savings accrue to the new owners.第18頁，共27頁。APV Method: Step 4 Calculate the present value of the firm including tax benefitsAdd the present value of the firm without debt and the PV of tax savings 第19頁，共27頁。APV Method: Step 5Determine if deal makes sense:Doe

30、s the PV of free cash flows to equity investors plus tax benefits equal or exceed the initial equity investment including transaction-related fees?第20頁，共27頁。Evaluating the Adjusted Present Value MethodAdvantage: Simplicity.Disadvantages:Ignores the effect of changes in leverage on the discount rate

31、as debt is repaid,Implicitly ignores the potential for bankruptcy of excessively leveraged firms, andUnclear whether true discount rate should be the cost of debt, unlevered cost of equity, or somewhere between the two.第21頁，共27頁。Adjusted Present Value Method: An IllustrationPresent Value of Equity C

32、ash Flows Using the Adjusted Present Value Method2013 201420152016201720182019AssumptionsMarginal Tax Rate (t)0.4Comparable Company Unlevered Beta210-Year Treasury Bond Rate0.05Firms Credit RatingBExpected Cost of Bankruptcy as % of Firm Market Value (per Andrade and Kaplan, 1998, and Korteweg, 2010

33、)0.2500Cumulative Probability of Default for a B-Rated Firm over 10 Years0.3680Risk Premium on Stocks0.0550Terminal Period Growth Rate0.045020042010 Unlevered Cost of Equity0.1700Terminal Period WACC 0.1200Adjusted Equity Cash Flow8.5Plus: Tax Shield1.0Plus: Termi

34、nal Value123.8Equals: Total Cash Flow132.7PV of 20132019 Cash Flows$61.07 Less: PV Expected Cost of Bankruptcy5.62PV of Cash Flows Adjusted for Expected Cost of Bankruptcy$55.45第22頁，共27頁。Discussion QuestionsCompare and contrast the cost of capital and the adjusted present value val

35、uation methods?Which do you think is a more appropriate valuation method? Explain your answer.第23頁，共27頁。What is An LBO Model?An LBO model is used to determine what a firm is worth in a highly leveraged transaction.It is applied when there is the potential for a financial buyer or sponsor to acquire

36、the business. The model helps define the amount of debt a firm can support given its assets and cash flows. Investment bankers frequently employ such analyses in addition to discounted cash flow and relative valuation methods in valuing businesses they are attempting to sell. Financial buyers seek L

37、BO opportunities offering a financial return in excess of their desired rate of return, while allowing the target firm to meet potential future operating challenges.第24頁，共27頁。Key LBO Model RelationshipsLinking purchase price (enterprise value) to industry multiplesPPTF = (EV/EBITDA) EBITDATF Linking

38、 purchase price (enterprise value) to target firms borrowing capacity and financial sponsors equity contributionPPTF = (DTF + ETF ) where DTF = net debt (i.e., total debt less cash and marketable securities held by the target firm) ETF = financial sponsors equity contribution to the target firms purchase price PPTF = estimated purchase price of the target firm or enterprise value EBITDATF = target firm earnings before interest, taxes, depreciation, and amortization EV/EBITDA = recent comparable LBO transaction enterprise value to EBITDA multi