Private Equity Masterclass

Description

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A strong understanding of private equity and deal structuring has become a necessity for most finance professionals. Private equity or venture capital is needed to fund growth strategies for most financial organizations and has an integral role to play in M&A and LBOs.

This 2.5 days Masterclass will cover several deal structuring techniques relating to private equity, venture capital and buyout deals. Deal structuring issues and solutions will be illustrated and discussed for various stages and components of private equity transactions. Hands-on exercise and real-life examples will be used to maximize clarity of understanding. If you are interested in advanced LBO modeling, this is the course for you.

What you will learn

LBO Valuation

Delegates revisit the concepts underlying leveraged buyouts. The session starts by establishing why private equity firms can create value through leveraged buyouts and how the levered valuation fits into the valuation roadmap. Using a simple free cash flow forecast, delegates establish how much a financial buyer could pay for the target company. Delegates then build a simple LBO model.

Learning outcomes

• What an LBO is and how it can create value
• LBO valuation as an alternative valuation methodology
• Characteristics of suitable LBO candidates
• Estimating cash flows available to capital holders
• Estimating debt capacity
• Simplified debt/equity split for entry capital structure
• Sources and uses of funds
• Debt structure
• Estimating the exit value
• Calculating the IRR
• Sensitizing the model

Debt Structuring, Capital Structure, Rating and Financing

Delegates revisit the key concepts of debt structuring as well as implications of structural vs. contractual subordination. Many life case studies and exercises will supplement debt structuring. Following the debt structuring, delegates will spend time on capital structure and credit implications. The focus will be on understanding the implications of probabilities of default, risk and optimising risk from a debt issuer as well as a debt investor perspective.

In addition, delegates will learn about capital structure and rating of a company, with a particular focus on IG versus high yield debt instruments. As part of this course, the delegates will structure an LBO and model the impact of the new financing structure. This session concentrates on understanding the capital structure and rating implications of a new finance structuring.

Learning outcomes

• Debt structuring
• Covenant vs. cash flow based debt capacity
• Structural vs. contractual subordination
• Capital structure decisions in the context of corporate strategy
• What is capital structure analysis?
• The impact of financial leverage on earnings and returns
• Using ratios to measure leverage
• Leverage increases earnings volatility
• Capital structure in the context of WACC
• Impact of leverage on EPS and the importance of the use of debt proceeds
• Using leverage to increase ROE
• The impact of financial leverage on corporate value
• The value of the tax shield on interest expense
• Does an optimal capital structure exist?
• Capital structure and rating analysis
• Ratio analysis for credit ratings
• Investment-grade vs. high yield
• Key items of terms sheets
• The concept of cash flow lending
• The lender’s perspective: risk, return and exit routes
• Advanced structural vs. contractual subordination - case studies
• Financial instruments used in IG and levered transactions
• Senior debt (revolving facility, terms A, B and C)
• Second lien
• Mezzanine loans
• High yield bonds
• PIK notes
• Preferred shares, shareholder loans and vendor loan notes
• Ordinary equity

Complex LBO Modeling and Sponsor Management

Delegates learn about financial sponsors, their investment perspective, exit strategy and how to best decide on a value maximising exit strategy. Delegates will also look at different financing products to be used in the LBO plus a suitable management entry vs. package. Finally, delegates will learn how to assess the return to sponsors vs. the return to management as well as providers of financing (such as mezzanine fund providers).

Learning outcomes

• Sponsors and their investment perspective
• Overview of different type of financial sponsors
• Sovereign wealth funds - how do they differ from more traditional sponsors?
• Deal and market update - what is currently happening in the sponsors' space?
• Sponsor exits
• Timing considerations
• Routes to exit
• Advantages and disadvantages of full exit vs. staged exit
• Dual track vs. other combined or "hybrid" exit routes
• Lessons learned from "exits gone wrong"
• Sponsor return analysis
• IRR vs. money multiple
• IRR vs. MIRR vs. XIRR
• Capital structure and rating implications for the sponsor
• The concept of cash flow lending
• The lender’s perspective: risk, return and exit routes
• Structural vs. contractual subordination
• Financial instruments used in sponsor transactions
• Key pros and cons of various leveraged instruments from a sponsor perspective
• Senior debt (revolving facility, terms A, B and C)
• Second lien
• Mezzanine loans
• High yield bonds
• PIK notes
• Preferred shares, shareholder loans and vendor loan notes
• Ordinary equity
• Hands on analysis of all items discussed
• Sources and uses of funds table
• Ownership structure
• Management and mezzanine entry vs. exit
• How to analyze and negotiate warrants
• Goodwill calculation - sponsors view on goodwill
• Deal adjustments, including amortization of debt issuance fees
• Cash flows available for debt servicing
• Repayment schedules for individual debt instruments
• Acceleration of debt payments using a cash sweep mechanism
• RCF - how can the sponsor decide the correct amount to be provided by the banks
• PIK interest
• Sensitizing the various chosen debt instruments
• Sensitizing the capital structure
• Detailed return analysis to sponsor, management and mezz provider

LBO Modeling Issues

Delegates learn how to build complex components of LBO models. Delegates will gain a thorough understanding of why a component is used in practice, how it works and how to model it.

Learning outcomes

Leveraged recapitalization
Multiple capital structure scenarios
Management ratchets
Incorporate a revolving credit facility in the sources and uses of funds
Date related IRRs (XIRR)