The ASSociate

Friday, November 03, 2006

The ASSociate

You know a big fat brownie has landed right in your lap when you get an email like this:

From: Moran, Seth (IBD)
Sent: 27 October 2006 16:07
To: Moncrieff, Michael (IBD)
Cc: McDermott, Mary (IBD)
Subject: Presentation for Monday


I just spoke to Mary who said you have some capacity to help me with a short follow-on pesentation on Project Magnificent. I specifically asked for you as I know the type of work you deliver and this is one of those babies where we are so close to a deal that we cannot let it slip away from us.

As you are already familiar with the company and previous work we did for them. I have spent quite some time whilst on holiday thinking about what we need to do for Monday, and below is a list of pages I need you to create.

Table of contents

Introduction – I will draft this.

Selected creds – doctor the league tables so we are No. 1 in equity, debt and M&A. I know this is hard so I don’t care how you do it. We need to be No.1.

Industry Snapshot – update the page we used last time with the benchmarking matrix superimposed on the attractiveness/interest matrix using a bubble chart. Try to also squeeze in there the correlation graph Charlie came up showing the relationship between size and profitability (his answer though is wrong I think) – there should be a much stronger correlation – check this and change it so that correlation is greater than 80% - I don’t care how you do it.

Share price graph with volume over the last 12 months, with industry and FTSE100 indexed to the start in the background, and annotated key events on the seidebars.

Equity research views page with price target / research house / analyst / date histogram. Also call equities and get investor sentiment feedback and put it in. Be selective here and only include positives.

Summary capitalization page – from share price to firm value. Also show implied EV:EBITDA multiples for 2006, 2007 and 2008. Use average IBES EBITDA estimates. Also show Implied P:Es for 2006, 2007 and 2008, again using IBES estimates.

Pull a list of precedent transactions and show them in a colourful bubble chart. We need the elected multiple to be about 8x LTM EBITDA, so work your way back from there when selecting which transactions to show.

Do a simple DCF analysis and show the implied DCF valuation. Show a page on key DCF assumptions. Run the DCF on a pre and post synergies basis. Show also the valuation difference if you use a 1% perpetuity growth or exit EBITDA approach. If it is not too much trouble, I would like to see both 5 and 10 year DCFs before deciding how to present this.

Run a simple LBO analysis. One page on the key assumptions. Entry multiple = exit multiple. Debt at 9x LTM EBITDA, recap after 2 years. Try to get debt pricing from capital markets before they leave for the weekend today – you may need to do this quickly as it’s 4PM already. I want to see the LBO on an OpCo:PropCo structure and a standard sale and leaseback structure, as well as the standard leveraged acquisition. It would also be interesting to see whether a REIT structure would fly for this. Don’t spend too much time on this. I don’t want you to be here
all weekend.

Prepare a page outlining which sponsors have invested in the industry before and hold portfolio companies in this industry.

Have a section on Bolton acquisitions. With the following slides:

Accretion / dilution analysis based on 100% cash, 75% cash, 50% cash, 25% cash and 100% stock. Show each analysis on the basis of 2005A 2006, 1007 and 2008 projected financials.

Illustrate the impact on the DCF of the bolt-on acquisition. In a page. Do a sensitivity table for the structure used (100% cash, 75% cash, 50% cash, 25% cash and 100% stock).

Do the same for the (LBO 100% cash, 75% cash, 50% cash, 25% cash and 100% stock)

Next section is our understanding of the business:

Prepare three once page case-studies based on the most appropriate precedent transactions you will find. Each case study should show analysis of strategic rationale, financial impact and iplied multiples and stock market commentary.

Socrecard benchmarking different options: how much debt to use, to do bolt-ons, which LBO structure to use, etc. I want moons/half moons and ticks and crosses alongside the commentary.

Conclusion – I will draft this.

Thanks for your help with this and call me when you have a solid draft.

Have a good weekend.



Anonymous said...

hope you had an army of analysts working for you that weekend

Andrew said...

That's when you pull a Rob Tucker...

Anonymous said...

Dude, you need to eb consistent with the quality of work you deliver and hence need to be pulling a Rob Tucker all the time ;)

Keep em coming!

Anonymous said...

this guy really puts the ASS in ASSociate...