Business Acquisitions: Finance and Strategies

Transcription

1 UCLA EXTENSION BUSINESS AND MANAGEMENT COURSE TITLE: COURSE NUMBER: Business Acquisitions: Finance and Strategies X Reg#W9296B QUARTER: Winter 2011 INSTRUCTOR: MEETING TIMES: LOCATION: OFFICE HOURS: Alec Salemon BWS Capital Partners Phone: (213) Ext. 568 Fax: (213) Wednesday evenings 6:30PM to 9:30PM. UCLA 1234 Public Affairs Bldg By appointment. Course Description This course is designed for students, entrepreneurs, professionals and individual investors looking to understand the process of business acquisition and the inner workings of private capital market from both capital seekers and investors point of view. The course begins with the discussion of the current economic conditions that drives some fundamental changes in the workings of private capital market. The course will also discuss private equity investment, including structures, deal processes, and common practices. The acquisition process is also covered extensively and includes sourcing acquisition leads and opportunities; evaluating industry strengths, risks, and financial analysis of a potential transaction. Due diligence topics include review of deal review processes, negotiation techniques, methods of working with transaction s target and other useful due diligence tools. An overview of valuation models include cash flow methods, historical price multiples by industry, size, or rate of growth and analysis of build-versus-buy decision. Structuring topics include term sheets, stock versus asset sale, structuring seller's participation and closing of agreement. Financing options also are covered, including fundraising process, working with individual partners, banks, mezzanine lenders, venture capitalists, and private equity groups. Students leave the course with an understanding of how to put together a deal, how to minimize overpaying, and how to increase their chances of success in a acquisition/merger transaction. Course Objectives, Purpose & Scope: Page 1 of 10

2 The four fundamental course objectives are to (1) gain an overview of strategic issues driving each transaction, (2) understand the business acquisition process and the private capital market, (3) gain an overview of process to complete a business acquisition, and (4) gain an understanding of post-closing integration issues. Understanding the business acquisition process includes defining attributes of a good target, identifying potential targets, estimating a target s value in the marketplace, preparing a confidentiality agreement or non-disclosure agreement, preparing a due diligence data request list, preparing a letter of intent, and comprehending critical elements of the stock/asset purchase agreement. It is the course main objective to help students to understand the private transaction from both the seller/capital seekers and the investors point of view. This course will be a challenge: Many of the topics and sub-topics will be taught with the expectation that students are familiar with basic financial body of knowledge and basic accounting principles. Strategy, valuation and negotiation methods are three of the most important core of the course. The course will be highly participative and focus on thinking, understanding, analyzing, and presenting findings and conclusions based on developing analytical skills for use in a multitude of corporate and personal business acquisition settings. Although the course will focus on business acquisition, it will also touch on much relevant information on the workings of the private capital markets and the typical investors. Typical Class Schedule Typical class schedule will consist of review of previous class, open discussion of current events (when applicable), discussion of the current week s assignment, introduction of new materials and hopefully, we head home on time. It is my goal to consider both endogenous and exogenous variables for our study course Textbook Readings Some of the topics covered in the class will be new to many students and I will be speaking mostly based on my experience in the industry. The course concentrate on current events and practical body of knowledge to help students to gain practical understanding of the private capital market and business acquisition processes. While most of the course will be based on the practical application of the subject, I am recommending students to use these textbooks for their reference: Valuation: Measuring and Managing the Value of Companies. Third Edition by Copeland, Koller and Murrin (McKinsey & Co.), John Wiley & Sons, 2000; Valuation for M&A by Evans & Bishop, John Wiley & Sons, 2001; Deal Terms by Alex Wilmering, Aspatore Books, 2005 Recommended Periodicals Page 2 of 10

3 The New York Times, Business Section (online: Wall Street Journal, (online: Barron s, Dow Jones & Company, weekly The Economist, weekly Other Resources Books: Websites: The Interpretation of Financial Statements: The Classic 1937 Edition by Benjamin Graham and Spencer B. Meredith, Harper & Row, 1937, First Harper Business edition, 1998; The Essays of Warren Buffett: Lessons for Corporate America by Warren Buffett, selected, arranged and introduced by Lawrence A. Cunningham, 1st Rev and 2001; Security Analysis: The Classic rd Edition by Benjamin Graham and David Dodd, McGraw-Hill 1951; Wall Street Journal: Guide to Understanding Money & Investing by Kenneth M. Morris and Virginia B. Morris, Lightbulb Press 2004; A Modern Approach to Graham & Dodd Investing by Thomas P. Au, John Wiley & Sons 2004; Irrational Exuberance, Robert J. Shiller, Princeton University Press 2000; A Short History of Financial Euphoria, John Kenneth Galbraith, 1990, available in paperback; Barbarians at the Gates, Burrough and Helyar, Harper Publishing, 2003; Cold Steel, Bouquet & Oussey, Little Brown, National Bureau of Economic Research ( Economy.com ( Morningstar, Inc. ( The Federal Reserve Board Statistics ( Federal Reserve Bank of St. Louis: Economic Research ( Standard and Poors (www2.standardandpoors.com) New York Stock Exchange ( National Association of Securities Dealers ( Securities Exchange Commission ( SEC Edgar Database of Financial Filings ( Value Engine ( Page 3 of 10

4 Text, Readings, Cases, etc. Participation in this course assumes some modicum of accounting, financial statement analysis, investment theory, and capital markets understanding. The student is expected to read, comprehend, and retain each week s reading assignments. Midterm, Final and Other Forms of Feedback The midterm is a short 20-question essay test on February 22 nd. The test will measure your understanding of the current economic condition, the private capital market, fundamental process and valuation of acquisition transaction and key elements of a successful transaction. On the final day of class (March 28 th ), the student will present a short essay summarizing the class. The presentation will account for 45% of the overall course grade. The class will be provided with a case as the base of the essay. Each STUDENT must present the reasoning behind their decision that is based on their field research, findings and materials from the class. Grading The final grade (0-100) is composed of the above mentioned components. The approximate point allocations follow: Midterm: 35% Final Project: 45% Participation: 25% Total Grade: 100% By design, the course can t really accommodate precise calculations. Assuming for the moment that the class is balanced, attends and participates regularly, a student who gets a total of Final Thoughts points will receive an A points will receive a B points will receive a C points will receive a D Below 65 points will fail. The instructor is really big on language and communication skills. There are no degrees of uniqueness. State facts, not superlatives, differentiate opinions from factual data and make sound judgment on the findings. Page 4 of 10

5 Disclosures Please note: Incompletes ALL COURSE GRADES ARE FINAL. The interim grade Incomplete may be assigned when a student s work is of passing quality, but a small portion of the course requirements is incomplete for good cause (e.g., illness or other serious problem). It is the student s responsibility to discuss with the instructor the possibility of receiving an I grade as opposed to a non-passing grade. The student is entitled to replace this grade by a passing grade and to receive unit credit provided they complete the remaining coursework satisfactorily, under the supervision of and in a time frame determined by the instructor in charge, but in no case later than the end of the next academic quarter. At that time, the Registrar will cause all remaining Incompletes to lapse to the grade F. Note: Receiving an I does not entitle a student to retake all or any part of the course at a later date. If you have any questions regarding the instructor s grading policy, please raise any such questions immediately. Page 5 of 10

6 Session Planning I. January 11- Introduction 1. Introduction: Goal: To have students learn about the private capital market, especially the business acquisition process. Have educated opinion on private capital transaction; Able to analyze and value acquisition transaction; Understand factors/elements needed to successfully complete the transaction; Opine on relationship between the economy and private capital market; Obtain tools to get into the industry. 2. Current economic condition; 3. What this course is and is not about; 4. Private capital market introduction. II. January 18 - Acquisition, Where to Begin? 1. Roles of private capital market; 2. Sarbanes Oxley and its implications; 3. The fundamental process of acquiring a company; 4. Know your purpose/underlying strategy. III. January 25 - Brief in Transaction Types and Valuation Methods 1. Acquisition rationale: Looking for growth through horizontal acquisitions; Grow vertically move up the food chain; Personal reasons. 2. Resources for the process; 3. Conditional/situational requirements; 4. Sourcing acquisition targets; 5. Types of transaction Strategic acquisition Page 6 of 10

7 LBOs; Equity investments; Exit transactions; PIPE. IV. February 1 - Company Valuation 1. Brief in Valuation; 2. Importance of valuation; 3. Two of the most significant valuation measures/methods: Economic Value Added; Synergy Value Added. 4. Comparison in method: established vs. startup entity; 5. Types of valuation: Fair Value; Investment Value. 6. Three processes: Bottom up; Top Down; Comparative. 7. Market valuation what to look for? 8. Industry valuation what to look for? 9. Company valuation what to look for? 10. Projection and value pricing; 11. Time Value of Money or DCF; 12.Consolidation value. V. February 8 - Recap of the Transaction 1. Startup valuation: Key characteristics; Assumptions generation. 2. Merger valuation: Seven value creation determinants' Evolution of value. 3. Historically speaking industry averages; 4. Key non-number areas to focus on; 5. Consideration in the transaction: Focus on valuation; Page 7 of 10

8 Walking away is an option. VI. February 15 - Mid-Term Exam 1. Recap of previous discussions 2. Essay exam 20 essay questions VII. February 22 Midway NDAs, LOIs and Due D 1. Recap of exam; 2. Component of successful transaction: Components of successful closing; Deal cycle; The price is right; Causes for failures. 3. ISS case study; 4. Understand the purpose for and typical language of NDAs/NCAs; 5. Key elements of a due diligence: What s due diligence? Why do we do it? What are we looking for? What kinds of data and documents do we request? What do we do with it when it arrives? VIII. February 29 - Acquisition Financing, Stock vs. Cash and other payment issues 1. Decision point: How much and what do we want to convey to the target? What are the key sections of an LOI or formal expression of interest? Are we obligated to do everything we say or propose in the letter? 2. Acquisition consideration: cash or stock or both? 3. Accountings issues: Why can t we just add the two balance sheets together? If we can t, how do we affix a value to what we re acquiring? Any combination or permutation of the above? IX. March 7 Term Sheet and Closing Page 8 of 10

9 1. Internally generated cash, target s cash, assumption of target liabilities; 2. Paying for the transaction; 3. Term Sheet: Components of the offering; Sample. 4. What s a Stock (Asset) Purchase Agreement? X. March 14 - Integration 1. Anti dilution protecting your interest in the company: Types of protection; Sample calculation. 2. What does integration mean? Relations of due diligence to integration; The cycle. Keys to success; Role of integration manager. 3. Advisory Board: Purpose; The right advisors; Responsibilities; Compensation; Conflicts. 4. TARMAC case study. XI. March 21 Bonus The Case for Startups, The PE Industry 1. The process for startup/new market integration: Market Validation; Fund-raising; Exit strategies. 2. PE Industry: Trends; The future XII. March 28 - Final Project Due; Course Wrap-up Page 9 of 10

10 1. Recap of previous discussion; 2. How to get into the PE/VC industry; 3. Final short paper is due; 4. Q&A/Course wrap up. Page 10 of 10