Book description
Praise for Valuation for Mergers, Buyouts, and Restructuring
"Enrique Arzac has provided an excellent analytical framework for the LBO business."--William T. Comfort, Chairman, Citigroup Venture Capital
"Enrique Arzac has created a masterpiece--his work combines the theoretical with the practical. He has created an invaluable reference guide that is thoughtful, complete and very user friendly. He provides insight into the theory behind core valuation, LBO's, and options pricing, which creates the foundation for mergers, buyouts and restructuring. In addition to the theoretical, he provides practical insight into deal structuring and deal dynamics. His work should be standard material for all incoming associates."--James P. McVeigh, Managing Director, Corporate & Investment Banking, Banc of America Securities
"This first-rate book of applied financial theory provides the tools for financial institutions and capital market participants seeking a methodology for comparing, contrasting, and evaluating investment opportunities and options. By inc orporating over 30 years of research, teaching, and practical experience, Professor Arzac has created a text that us not only timely, but timeless in its usefulness to anyone interested in learning the applications of financial theory for the best and most useful allocation of the scarcest economic resource in the world--capital."--William W. Priest, Co-Managing Partner, Steinberg, Priest and Sloane Capital Management and Former Chairman and CEO of Credit Suisse Asset Management
"There are two important aspects in graduate business education. The first is acquiring a thorough understanding of the theories of modern finance and the second is acquiring an appreciation for how these theories can be applied to important decisions. Enrique Arzac has taken on this task and made it a successful venture for readers of this book. Unlike other texts on valuation, he explains the reasons for the process and sequence that he recommends rather than just providing the ingredients and the recipe without explanation. This is a welcome addition to the literature in applied corporate finance."--Joel M. Stern, Managing Partner, Stern, Stewart & Co.
Table of contents
- Cover Page
- Title Page
- Copyright
- Dedication
- Preface
- About the Author
- Brief Contents
- Contents
-
Part One: The Tools of Valuation
-
Chapter 1: A User's Guide
- 1.1 VALUATION OF STAND-ALONE FIRMS AND BUSINESS UNITS
- 1.2 ECONOMIC VALUE ADDED
- 1.3 VALUATION WITH CHANGING CAPITAL STRUCTURE
- 1.4 VALUATION IN DEVELOPED AND EMERGING MARKETS
- 1.5 MERGERS AND ACQUISITIONS
- 1.6 DEAL DESIGN AND SPECIAL OFFER STRUCTURES
- 1.7 LEVERAGED BUYOUTS
- 1.8 RECAPITALIZATION OF TROUBLED COMPANIES
- 1.9 ASSET RESTRUCTURING
- 1.10 REAL OPTIONS: VALUING ENTRY AND EXIT OPTIONS
- 1.11 TECHNICAL NOTES AND PROBLEMS
- 1.12 VALUATION AIDS AND DealModeler® SOFTWARE
- Chapter 2: Forecasting and Valuation of Free Cash Flows
-
Chapter 3: The Equity Premium and the Cost of Capital
- 3.1 ESTIMATING THE COST OF CAPITAL
- 3.2 THE COST OF EQUITY
- 3.3 THE COST OF EQUITY OF LARGE CAPITALIZATION COMPANIES
- 3.4 THE COST OF EQUITY AND LEVERAGE
- *3.5 BEYOND THE CAPITAL ASSET PRICING MODEL 41
- 3.6 THE COST OF EQUITY OF SMALL CAPITALIZATION COMPANIES
- 3.7 ESTIMATING THE COST OF EQUITY: A DETAILED EXAMPLE
- 3.8 THE COST OF DEBT AND OTHER COMPONENTS OF THE CAPITAL STRUCTURE
- 3.9 ESTIMATION OF THE COST OF CAPITAL IN PRACTICE
- 3.10 SUMMARY
- PROBLEMS
-
Chapter 4: Metrics and Multiples
- 4.1 THE USE OF MULTIPLES IN VALUATION
- 4.2 USING COMPARABLES: AN EXAMPLE
- 4.3 MULTIPLES AND CONTINUATION VALUE
- 4.4 RELATIONSHIPS AMONG VALUATION MULTIPLES
- *4.5 ADJUSTING MULTIPLES FOR LEVERAGE AND GROWTH 7
- *4.6 THE FRANCHISE FACTOR IN VALUATION MULTIPLES
- 4.7 NORMALIZING P/E RATIOS BY THE GROWTH RATE
- 4.8 SUMMARY
- PROBLEMS
- Chapter 5: Economic Value Added
-
Chapter 6: Valuation with Changing Capital Structure
- 6.1 LEVERAGE CHANGES AND ENTERPRISE VALUE
- 6.2 ADJUSTED PRESENT VALUE AND THE VALUE OF THE TAX SHIELD
- 6.3 A DETAILED EXAMPLE OF APV VALUATION
- 6.4 VALUING AN ACQUISITION WITH LEVERAGE ABOVE TARGET
- 6.5 RECURSIVE WACC VALUATION
- 6.6 COMPRESSED APV
- *6.7 UNCERTAIN LEVERAGE: A RECURSIVE APV MODEL 11
- *6.8 VALUING EQUITY AS AN OPTION 17
- 6.9 SUMMARY
- PROBLEMS
-
Chapter 7: Debt Capacity for Acquisition Financing
- 7.1 FINANCIAL INTERDEPENDENCIES
- 7.2 FINANCING GROWTH
- 7.3 GROWTH VIA ACQUISITIONS
- 7.4 SUSTAINABLE DEBT
- 7.5 THE TARGET DEBT RATIO ASSUMED IN WACC VALUATION, DEBT CAPACITY, AND INTEREST COVERAGE
- 7.6 DEBT CAPACITY IN LEVERAGED BUYOUTS AND RECAPITALIZATIONS
- 7.7 THE DEBT CAPACITY MULTIPLE IN PRACTICE
- 7.8 SUMMARY
- PROBLEMS
-
Chapter 8: Valuing Entry and Exit Options
- 8.1 NET PRESENT VALUE AND OPTIONS
- 8.2 A CONTINUOUS-TIME MODEL OF FREE CASH FLOWS 4
- 8.3 VALUATION IN DISCRETE AND CONTINUOUS TIMES
- 8.4 VALUING A GOING CONCERN IN CONTINUOUS TIME 11
- 8.5 VALUING THE ENTRY OPTION
- 8.6 ENTRY AND EXIT OPTIONS
- 8.7 VALUING FOOTHOLD AND GROWTH OPTIONS
- *8.8 ALLOWING FOR UNCERTAIN COSTS IN FOOTHOLD INVESTMENTS 17
- 8.9 SENSITIVITY OF DCF VALUES IN THE PRESENCE OF REAL OPTIONS
- 8.10 SUMMARY
- PROBLEMS
-
Chapter 1: A User's Guide
-
Part Two: Mergers, Acquisitions, and Buyouts
-
Chapter 9: Mergers and Acquisitions
- 9.1 VALUE CREATION AND MERGERS
- 9.2 LEGAL FORM OF THE TRANSACTION AND TAX CONSIDERATIONS 3
- 9.3 EXAMPLES OF TAX CONSEQUENCES
- 9.4 TAX-FREE REORGANIZATIONS
- 9.5 MERGER ACCOUNTING
- 9.6 PREMIUMS AND THE IRON LAW OF M&A
- 9.7 BREAK-EVEN SYNERGIES
- 9.8 PREMIUMS AND THE ACQUIRER'S FOOTHOLD
- 9.9 ACCRETION-DILUTION ANALYSIS
- 9.10 FREE CASH-FLOW VALUATION: TOTAL VERSUS INCREMENTAL FREE CASH FLOWS
- 9.11 COMPREHENSIVE MERGER EXAMPLE
- 9.12 SUMMARY
- PROBLEMS
- Chapter 10: Deal Making with Difference of Opinion
- Chapter 11: Special Offer Structures: Price Guarantees and Collars
- Chapter 12: Acquisitions in Developed and Emerging Markets
-
Chapter 13: Leveraged Buyouts
- 13.1 THE RATIONALE FOR LBOs
- 13.2 FINANCING LBOs
- 13.3 ROBUST FINANCIAL STRUCTURES
- 13.4 COMPUTING THE RETURNS TO INVESTORS
- *13.5 OPTION PRICING OF WARRANT KICKERS 11
- 13.6 DEBT CAPACITY AND AFFORDABLE PRICE
- 13.7 RETURNS TO INVESTORS AND THE PRIVATE-EQUITY DISCOUNT
- 13.8 A DETAILED LBO EXAMPLE
- 13.9 MEZZANINE FINANCING
- 13.10 APV VALUATION
- 13.11 SUMMARY
- PROBLEMS
-
Chapter 9: Mergers and Acquisitions
-
Part Three: Recapitalizations and Restructuring
- Chapter 14: Recapitalization of Troubled Companies
-
Chapter 15: Asset Restructuring
- 15.1 ASSET RESTRUCTURING AND THE VALUE GAP
- 15.2 IS THERE A DIVERSIFICATION DISCOUNT?
- 15.3 SHARE REPURCHASES
- 15.4 ASSET DISPOSITION
- *15.5 TAX AND ACCOUNTING TREATMENT 19
- 15.6 SUM-OF-THE-PARTS VALUATION
- 15.7 HEADQUARTER COSTS AND BENEFITS
- 15.8 COMPREHENSIVE RESTRUCTURING ANALYSIS
- 15.9 SUMMARY
- PROBLEMS
-
Appendix A: Financial Options
- A.1 FINANCIAL OPTIONS IN M&A VALUATION
- A.2 EUROPEAN CALLS AND PUTS AND AMERICAN CALLS
- A.3 AMERICAN PUTS
- A.4 WARRANT PRICING MODEL
- A.5 ASIAN OPTIONS
- A.6 KNOCKOUT (BARRIER) OPTIONS
- A.7 THE PUT-CALL PARITY
- A.8 STOCK OPTIONS PAYING A KNOWN DIVIDEND YIELD
- A.9 DILUTION ADJUSTMENT IN WARRANT VALUATION
- PROBLEMS
- Appendix B: Valuation Aids Software
- Appendix C: Answers to Selected End-of-Chapter Problems
- Appendix D: Modeling Mergers and Buyouts with DealModeler®: User's Manual
- Technical Notes
- References
- Index
Product information
- Title: Valuation for Mergers, Buyouts, and Restructuring, Second Edition
- Author(s):
- Release date: November 2007
- Publisher(s): Wiley
- ISBN: 9780470128893
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