M&A Fundamentals

Part One

Introduction to M&A

• What M&A is and why it happens. M&A as a means to an end and the corporate mission misalignment. Agency risk and shareholders’ interests in M&A

• What M&A value creation is. How often is it achieved?

• 8 types of value which must be taken into account

• Main financial and accounting concepts to understand an M&A deal: SPAs, ESOPs, CIMs, PPAs, Lock-box, Holdbacks, and earn-outs

• A T2V simulation introduces participants to the concept of M&A through a dynamic visualisation of agency risks, shareholder interests, and value creation. This feature helps demystify complex relationships and presents a clear narrative of how M&A fits into corporate missions.

*Subject to live ChatGPT4 availability.

M&A Process (I)

• M&A fundamentals explores the Stakeholder. Internal, external. Players and their role. Conflicts of interest in M&A. Independent advisors vs brokers and investment banks

• An overview of the end-to-end process. Open, Sealed, Staggered or negotiated deal perimeters: Buyout, Spin-offs, Carve-outs, P2Ps

• Planning a deal analysis. Setting the record straight with management. Iterating analysis and deal generation

• Sourcing the deal. Internal vs external. Pros and cons. Confidentiality issues. Choosing the right size team for each step of the process

• Approach to valuation for listed and non-listed companies

• Organising appropriate due diligence – a key step to a successful deal. VDRs vs face-to-face

• Participants engage in T2S audio files to identify mappings of stakeholders and deal structures, such as carve-outs and spin-offs . This approach simplifies understanding of the end-to-end process, including sourcing deals and due diligence, by presenting layered, interactive visuals

M&A Process (II)

• M&A assesses the Confidential Information Memorandum (CIM) and the Teaser. Forever marketing documents. Seeing through the pitch. Financial focus. Pre due diligence process - all covered in fundamentals of mergers and acquisitions

• Letter of Intent. Managing time and resources internally. Managing the Exco vs deal fundamentals

• The Share Purchase Agreement: Definitions. Reps and warrants, Covenants, Conditions precedent. SPA risks: Inaccuracy, non-disclosure, regulatory hurdles, and post-closing disputes. Minority rights and obligations. Tag along/drag along

• Closing mechanisms as means to reduce transaction risk: Locked box vs completion explained. Analysis of their pros and cons. The equity bridge: Issues and calculations

• Funding the transaction. The role of investment banks and commitment letters. Conflict of interest. Management overreliance and drawbacks. Dependence of deals on market conditions. Consequences of the yield curve on M&A flow. Recent experience

• Post-merger integration. Execution timings, internal and external comms

• Pitfalls in M&A -  Case studies of M&A gone wrong

Part Two

Structuring and Funding

• M&A fundamentals assess the merger of equals vs asymmetrical mergers

• The importance of getting the structure right.

• Case studies of mis-selling the structure

• Stock sales vs Asset sales vs Mergers. Seller’s preference vs Buyer’s preference

• Rationale, pros and cons of each approach

• Funding: RCF, Term loans, Senior, Syndicated, High Yield, Convertibles, Preference shares, Unitranche

Due Diligence (DD)

• Operational due diligence. Corporate process and procedures. Time allocation.

• Case study of (UK and US) mergers gone wrong due to operational DD failures

• Financial DD. Case study: Autonomy sale to HP

• HR DD. Calculating severance and retention impact on valuation

• Legal DD. Identifying the most expensive risks to the transaction

• Using AI tools for advanced due diligence scanning is included in the introduction to M&A training

• AI-powered T2S tools enhance participants' ability to process due diligence outcomes.

• Participants experiment with prompt techniques to make the most of current LLM technology in scenarios where legal, financial, and operational risks are discussed, allowing them to practice identifying DD issues

M&A Modelling

• Valuing the company. Intrinsic and extrinsic methodologies. Public vs non-public companies

• During this session, we delve into building a merger model. Pre and post due diligence considerations. Modelling independence vs management pressure

• Modelling the cost of equity advantages

• Assessing relative multiples as the main driver of value creation. Pitfalls

• Synergies: Identifying the different types. Synergies vs cost savings. Pricing in synergies in line with market standards. Marketing synergies - institutional investors’ interpretation and their potential share price consequences. Revenue synergies. Negative synergies - all covered in M&A Fundamentals

• Modelling for goodwill and badwill. Recent examples of impacts and write-downs

• Understanding the impact of equity vs cash deals on valuations

• Introduction to waterfall funding modelling

• Sensitivity analyses. Testing for critical M&A drivers. Intrinsic vs extrinsic valuation benchmarks

• Case study: Selecting and merging companies based on value creation

* This module will be Excel-based to a large extent. A previous knowledge of spreadsheets is recommended to follow this session.

M&A Competition and Associated Transactions

• Corporates vs private equity bidders: motivational differences and deal dynamics

• M&A deal engines: SPACs boom and bust

• IPOs conclude this session of fundamentals of mergers and acquisitions

• Case study: When private equities overtake corporates in M&A

Training Objectives

• Understand the M&A process and the most critical aspects which determine value creation

• Develop a fundamental approach to analysing M&A deals

• Learn how to use the main tools and models as done by corporates, investment bankers and investors during the fundamentals of mergers and acquisitions

• Training helps participants identify the main risks in a transaction and decide whether to pursue or abort

• Be able to discern between real and apparent value creation

• Learn how to present, argue and defend an M&A deal to senior management and the board of directors

Training Course Summary

M&A Fundamentals at Redcliffe Training covers the end-to-end process of M&A activity. Sessions make extensive use of practical tools to understand how deals are structured and executed. Training also provides the knowledge to assess merger transactions based on their value creation merit. There is intensive use of Excel spreadsheets and case studies. Delivered online, this course uses multiple engagement and interaction tools to ensure a thorough understanding of this interesting subject.