Practitioner's Complete Guide to M&As

Preface xi

Acknowledgments xiii

TOPIC 1 Strategy Development, Then M&A 1

TOPIC 2 M&A Process: Front to Back 13

TOPIC 3 Why M&A? 17

TOPIC 4 Deal Criteria 19

TOPIC 5 Deal Sourcing 26

TOPIC 6 Fees for Services 29

TOPIC 7 Financial and Strategic Buyers 36

TOPIC 8 How Long Will It Take to Complete the Deal? 38

TOPIC 9 Confidentiality Agreements 39

TOPIC 10 "Concern Capture" Due Diligence 44

TOPIC 11 Keep Deal Conversations Quiet 53

TOPIC 12 Auctions 54

TOPIC 13 Seller's Prospectus 62

TOPIC 14 Pay for Inherent Capabilities Only 65

TOPIC 15 Platform Value 68

TOPIC 16 Buyer and Seller Value Perspectives 70

TOPIC 17 Integration Initiatives Will Determine Deal Value 73

TOPIC 18 Unlock Hidden Value: The Lean Enterprise 75

TOPIC 19 The Real Deal: Lean 78

TOPIC 20 Valuation: An Introduction 82

TOPIC 21 Discounted Cash Flow: An Introduction 86

TOPIC 22 Free Cash Flow 90

TOPIC 23 Fair Return on a Deal 95

TOPIC 24 Risk-Free Rates 104

TOPIC 25 Equity Risk Premiums 105

TOPIC 26 What Is Business Risk? 106

TOPIC 27 Entropy: Tendency toward Negative Variation 110

TOPIC 28 Equity Investor Risk 112

TOPIC 29 Beta 113

TOPIC 30 Systematic Risk 116

TOPIC 31 Unsystematic Risk 118

TOPIC 32 Beta with or without Debt 119

TOPIC 33 Beta: Levered or Unlevered 120

TOPIC 34 Beta Application in Determination of CU 123

TOPIC 35 Levered Beta Moves as Debt to Equity Moves 125

TOPIC 36 Size Premium 127

TOPIC 37 Weighted Average Cost of Capital 130

TOPIC 38 Terminal Values, Terminal Value Multiples, and Terminal Value DCFs 137

TOPIC 39 Discounted Cash Flow Valuation Illustrated 142

TOPIC 40 Leverage: The Real Deal 147

TOPIC 41 Debt Limits 149

TOPIC 42 Debt Adds Value: Derivation of Dt 151

TOPIC 43 The Leveraged Buyout; Definition and Valuation 155

TOPIC 44 Valuing the Leveraged Buyout 160

TOPIC 45 Real Option Valuation: An Introduction 169

TOPIC 46 Real Option Valuation: Application and Illustration 173

TOPIC 47 M&A Values Are Not All the Same 179

TOPIC 48 Discounts and Premiums 183

TOPIC 49 Discounted Cash Flow Valuations: Minority or Control 192

TOPIC 50 Inflation in DCF Valuations 194

TOPIC 51 Integration, Alignment, and Synergy Benefits: Plan It Out 195

TOPIC 52 Integration, Alignment, and Valuing Synergy Benefits 197

TOPIC 53 Venture Capital Valuation 208

TOPIC 54 Discount Rates and Valuing Free Cash Flow 211

TOPIC 55 Growth, C*, and Return: The Engine to Increased Valuations and Deferred Tax Advantage 222

TOPIC 56 How Fast Can the Target Grow? 225

TOPIC 57 Cash Flow Multiples, Growth Rates, and Discount Rates 227

TOPIC 58 Comparable Multiples 239

TOPIC 59 Converting FCFM to P/Es and Other Valuation Multiples and Deriving Slot Multiples for Public Companies 247

TOPIC 60 EBITDA Valuation Engine 264

TOPIC 61 Free Cash Flow Equivalent Impacts for Arbitrary Adjustments to Discount Rates 276

TOPIC 62 Transferring Defined Benefit Pension Plan Liability Issues 278

TOPIC 63 Environmental Remediation Expenses 282

TOPIC 64 Environmental Insurance 283

TOPIC 65 Management Warrant Incentive Plans 285

TOPIC 66 Negotiation: Introduction and Overview 290

TOPIC 67 Negotiation: Values, Offers, Prices, and Risk Assumption 292

TOPIC 68 Negotiation: Offer Content 296

TOPIC 69 Negotiation: Create Space in Your Ideas 298

TOPIC 70 Negotiation: Beware of the Emotions of Private Sellers 299

TOPIC 71 Negotiation: Imprint; Do Not Lecture 301

TOPIC 72 Negotiation: Handling Tight Spots 303

TOPIC 73 Negotiation: Closing the Bid-Ask Negotiating Gap 305

TOPIC 74 Negotiation: Be Aware of Leverage and Deal Momentum Shift 308

TOPIC 75 Negotiation in the Final Stages 311

TOPIC 76 Negotiation: Use Earn-Outs or Noncompete Agreements to Close a Bid-Ask Gap 313

TOPIC 77 Negotiation: After the Deal Is Agreed 318

TOPIC 78 Negotiation: Bluffing and How to Handle It 321

TOPIC 79 Negotiation: When Do You Step Away? 324

TOPIC 80 Negotiation: When Do You Proceed? 326

TOPIC 81 Negotiation: Do a Time Capsule 328

TOPIC 82 Negotiation: Build Trust to Get Closed 329

TOPIC 83 Exits under Duress: Have a Plan if the Deal Does Not Work 333

TOPIC 84 Structuring the Deal: An Overview 334

TOPIC 85 Structuring the Deal: Asset Step-Ups, Noncompete, and Synergy Valuation Engines 341

TOPIC 86 Total Shareholder Return 346

TOPIC 87 Stakeholder Value Creation 349

TOPIC 88 EVAquity: Align Shareholder and Management Interests 353

TOPIC 89 Letter of Intent 358

TOPIC 90 Purchase and Sale Agreement 359

TOPIC 91 Purchase and Sale Agreement: Explanation by Section 361

TOPIC 92 Purchase Price Adjustments for Working Capital 370

TOPIC 93 Indemnification and Survival Provisions 374

TOPIC 94 Escrows 379

TOPIC 95 Joint Venture Transaction: Valuation and Structuring Overview 381

TOPIC 96 Why Deals Go Bad 389

TOPIC 97 After the Deal: Do a Deal Bible 391

TOPIC 98 Do the Audits of the Integration and Deal Value Creation Plan 393

About the Web Site 395

Index 397