Leveraged Buyouts

Preface xi The Heinz Case Study xii How This Book Is Structured xiii Part One Leveraged Buyout Overview 1 Chapter 1 Leveraged Buyout Theory 3 Cash Availability, Interest, and Debt Pay-Down 3 Operation Improvements 4 Multiple Expansion 4 What Makes Good Leveraged Buyout? 4 Exit Opportunities 5 Is Heinz a Leveraged Buyout? 5 Chapter 2 What Is Value? 7 Book Value 7 Market Value 7 Enterprise Value 8 Multiples 12 Three Core Methods of Valuation 14 Chapter 3 Leveraged Buyout Analysis 19 Purchase Price 19 Sources and Uses of Funds 22 IRR Analysis 33 Part Two Leveraged Buyout Full-Scale Model 49 Chapter 4 Assumptions 51 Purchase Price 57 Sources of Funds 63 Uses of Funds 69 Chapter 5 The Income Statement 75 Revenue 76 Cost of Goods Sold 76 Operating Expenses 77 Other Income 78 Depreciation and Amortization 80 Interest 80 Taxes 81 Nonrecurring and Extraordinary Items 82 Distributions 82 Shares 83 Heinz Income Statement 84 Last Twelve Months (LTM) 108 Income Statement--Projections 116 Chapter 6 The Cash Flow Statement 133 Cash Flow from Operating Activities 133 Cash Flow from Investing Activities 137 Cash Flow from Financing Activities 137 Financial Statement Flows Example 138 Heinz Cash Flow Statement 144 Heinz Last Twelve Months (LTM) Cash Flow 154 Cash Flow Statement Projections 160 Chapter 7 The Balance Sheet 179 Assets 179 Liabilities 182 Heinz Balance Sheet 184 Chapter 8 Balance Sheet Adjustments 199 Goodwill 200 Heinz Balance Sheet Adjustments 208 Chapter 9 Depreciation Schedule 221 Straight-Line Depreciation 222 Accelerated Depreciation 222 Deferred Taxes 227 Projecting Depreciation 231 Projecting Amortization 241 Projecting Deferred Taxes 244 Chapter 10 Working Capital 247 Asset 247 Liability 247 Operating Working Capital 248 Heinz's Operating Working Capital 251 Projecting Operating Working Capital 262 Operating Working Capital and the Cash Flow Statement 271 Chapter 11 Balance Sheet Projections 279 Cash Flow Drives Balance Sheet versus Balance Sheet Drives Cash Flow 283 Balancing an Unbalanced Balance Sheet 301 Chapter 12 Debt Schedule and Circular References 309 Debt Schedule Structure 309 Modeling the Debt Schedule 310 Circular References 329 Automatic Debt Pay-Downs 337 Basic Switches 339 Finalizing the Model 339 Chapter 13 Leveraged Buyout Returns 351 Exit Value 351 Returns to 3G Capital 355 Multiple Expansion 361 Debt Pay-Down 364 Conclusion 364 Part Three Advanced Leveraged Buyout Techniques 365 Chapter 14 Accelerated Depreciation 367 MACRS 367 Accelerated versus Straight-Line Depreciation 372 Chapter 15 Preferred Securities, Dividends, and Returns toBerkshire Hathaway 377 Preferred Securities 377 Preferred Dividends 378 Returns to Berkshire Hathaway 388 Chapter 16 Debt Covenant Ratios, and Debt Fee Amortization395 Coverage Ratios 395 Leverage Ratios 397 Debt Fee Capitalization and Amortization 399 Chapter 17 Paid-in-Kind Securities 409 Appendixes Appendix 1: Model Quick Steps 417 Appendix 2: Financial Statement Flows 419 Income Statement to Cash Flow 419 Cash Flow to Balance Sheet 420 Appendix 3: Excel Hot Keys 421 About the Companion Website 423 About the Author 425 Index 427