askivy_assessment_center_case_study

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Point 3: M&A considerationsA. How does the combined entity look like?o Add revenues and EBITDA forecasts (those will be given) together and show therevenue growth and EBITA margins of the combined entities. Ideally, this shouldshow improving growth rates and/or margins. For example, we suggest creating atable such as the one below:Year 2011 2012F 2013FCompany ARevenue 100 120 140growth 20% 17%EBITDA 30 35 45margin 30% 29% 32%Company BRevenue 20 22 25growth 10% 14%EBITDA 7 9 10margin 35% 41% 40%Combined A+BRevenue 120 142 165growth 18% 16%EBITDA 37 44 55margin 31% 31% 33%o Extra points for mentioning that there could be “synergies” that would increaseEBITDA margins further. You could add a row just after the line “EBITDA” entitled“synergies” and add this number to the EBITDA to highlight this, as illustratedbelow. You can try to estimate synergies or make a guess. Typically, you estimatesynergies a percentage of revenues. A figure between 2% to 5% is reasonable ingeneral.Combined A+BRevenue 120 142 165growth 18% 16%EBITDA 37 44 55Synergies 5 5 5EBITDA + synergies 42 49 60margin 35% 35% 36%synergies, % revenues 4% 4% 3%B. How would you buy the company? This is a much more complicated part that needsdetailed explanation, and that you should read carefully, and make sure you fullyunderstand the concepts discussed below.12
There are 3 main ways to pay for a company you want to buy. First, you can use the cash youhave on your balance sheet. Secondly, you can borrow the money, especially if you don’t haveenough cash to buy the business, or if you want to keep some cash on hand. Third, only if youare a publicly listed company, you can pay with you own stock. If you are a listed company,your shares are listed on a stock exchange and will have a trading price or value attached tothem. Therefore, you will be able to use those shares to buy another company: effectively, youare giving up ownership in your company to the target. We will explain each method in moredetail, but beforehand make sure you understand those definitions below:o Definition of equity: equity is the residual claim over the company’s asset, after allliabilities are paid. It is a permanent source of capital, and has no interestpayments and doesn’t need to be repaid.o Definition of debt: debt is a contractual obligation, which typically carries interest,has a fixed maturity, and therefore is viewed as a temporary source of capital.1. Method no. 1: Cash acquisition method: this is the simplest method. Essentially, youreduce the amount of cash you have on your balance sheet by the acquisition price. This istypically done for small acquisitions. For bigger acquisitions, the company will want toborrow money. Why? Because it may not have sufficient cash, and also because interestexpense of debt is tax-deductible.2. Method no. 2: Debt acquisition method: let’s assume you only have $1 billion in yourbalance sheet but you want to acquire a business valued at $3 billion. You can use the $1billion cash (reducing that cash on the balance sheet) and then you will have to borrow the$2 billion that remains, which will increase your debt on the balance sheet. However, thereare several areas to pay attention to:o You cannot borrow any amount you like. Banks, when lending money, look atspecific financial ratios and will impose maximum or minimum limits (those limitsare called “covenant”). The most common limit is the ratio of net debt (total debtminus cash) to EBITDA. Typically, as a general rule of thumb, this cannot exceed4 times. So what EBITDA should you use? Because the companies will becombined and both companies’ cashflows will be used to repay the debt, youshould use your own EBITDA and add the target company EBITDA whencalculating the limit. Lets analysis this example:Example:Target price: $3 billionTarget EBITDA: $400 millionAcquiror total cash on balance sheet: $1billionAcquiror existing debt, that was already on its balance sheet: $1billionAcquiror EBITDA: $800 millionAssuming that pay the 3$billion with $1billion cash and $2billion debt:Company A + B EBITDA: $800m+$400m = $1.2 billion13
Page 1 and 2: Case Study PracticeForInvestment Ba
Page 3 and 4: What are Case Studies?Case studies
Page 5 and 6: o Don’t use any fancy charts or c
Page 7 and 8: Step 2: Categorising and filling th
Page 9 and 10: Content and JargonFor such a presen
Page 11: o Extra points for mentioning: exec
Page 15 and 16: One important point to understand i
Page 17 and 18: Company 2: German TelekomBusiness D
Page 19 and 20: Company 4: MultiTelBusiness Descrip
Page 21 and 22: • Introduction: mention that you
Page 23 and 24: Strengths Weaknesses Opportunities
Page 25 and 26: Note: we have used the structure th
Page 27 and 28: • (execution risk): you can menti
Page 29 and 30: o The combination would create syne
Page 31 and 32: Company 1: Hellas MobilePros:• Ec
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