Forum Search: capital markets
RE: For the WACC, should I use YTM or coupon for cost of debt?
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... Read More
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... Read More
RE: Why arent lease payments considered future debt obligations?
Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring t... Read More
Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring t... Read More
RE: Private Company M&A and LBO adjustments
The ramifications for a private company vs a public company are very similar - the major difference is that there is no EPS and Shares Outstanding. Thus, to "fudge it", you could assume that there is one Share Outstanding or, better yet, to be more precise, you would use Net Income => so instead ... Read More
The ramifications for a private company vs a public company are very similar - the major difference is that there is no EPS and Shares Outstanding. Thus, to "fudge it", you could assume that there is one Share Outstanding or, better yet, to be more precise, you would use Net Income => so instead ... Read More
RE: Insurance Company LBO Question
Typically, if holdco raises new capital inform of debt + equity, it would invest that capital directly downstream into insco. So, the total proceeds are treated as a contribution to statutory surplus at the subsidiary level. If it's an acquisition and there's no new cash created at holdco, then ther... Read More
Typically, if holdco raises new capital inform of debt + equity, it would invest that capital directly downstream into insco. So, the total proceeds are treated as a contribution to statutory surplus at the subsidiary level. If it's an acquisition and there's no new cash created at holdco, then ther... Read More
RE: Treatment of liabilities on the BS (as debt) in an M&A
The answer is no - when we look at transaction value, we are trying to gauge financial value not operating related items. Long term liabilities and working capital and other non-financial securities are to be excluded. Deferred income taxes also fall in that category since that's not a capital struc... Read More
The answer is no - when we look at transaction value, we are trying to gauge financial value not operating related items. Long term liabilities and working capital and other non-financial securities are to be excluded. Deferred income taxes also fall in that category since that's not a capital struc... Read More
RE: How do you maximize earnings accretion?
Aside from the favorite answer - SYNERGIES, there are several issues to consider when structuring a transaction to maximize earnings accretion. The first question is to whether to pay with stock, cash or a combination of the two. The next question is what are the relative P/E ratios of the Acquiror ... Read More
Aside from the favorite answer - SYNERGIES, there are several issues to consider when structuring a transaction to maximize earnings accretion. The first question is to whether to pay with stock, cash or a combination of the two. The next question is what are the relative P/E ratios of the Acquiror ... Read More
RE: Explain the difference between Stock vs Asset deals.
In a stock sale, the acquiror purchases the stock of the Company, thus purchasing the entire company (all of the assets, liabilities and future contingencies). In an asset sale, the buyer only purchases certain assets and liabilities of the target company. Thus, in an asset sale, the acquiror is not... Read More
In a stock sale, the acquiror purchases the stock of the Company, thus purchasing the entire company (all of the assets, liabilities and future contingencies). In an asset sale, the buyer only purchases certain assets and liabilities of the target company. Thus, in an asset sale, the acquiror is not... Read More
RE: Why does an LBO set the floor valuation?
LBOs set the floor valuation because in theory, anybody could buy another firm (in an M&A transaction) and make it highly levered but in such a deal, there would be 'synergies' and as such, if you do anything 'value added' on top of an LBO, one should extract additional value above and beyond a ... Read More
LBOs set the floor valuation because in theory, anybody could buy another firm (in an M&A transaction) and make it highly levered but in such a deal, there would be 'synergies' and as such, if you do anything 'value added' on top of an LBO, one should extract additional value above and beyond a ... Read More
RE: Capital leases revisited x2
Industry is important - they should not only be adding back minority interest but also subtracting out equity investments (opposite of minority interest). Rationale: match the numerator (valuation) with denominator (EBITDA). So that means, profitability on IS is increased by 100% of subsidiary, but ... Read More
Industry is important - they should not only be adding back minority interest but also subtracting out equity investments (opposite of minority interest). Rationale: match the numerator (valuation) with denominator (EBITDA). So that means, profitability on IS is increased by 100% of subsidiary, but ... Read More
If there is no beta, use publicly traded competitors' beta! This is covered in our Corporate Valuation and Valuation (Trading Comps) classes. If a company has no beta, what are you regressing when you say regress the company's excess return to market? If a company has returns, then by definition the... If there is no beta, use publicly traded competitors' beta! This is covered in our Corporate Valuation and Valuation (Trading Comps) classes. If a company has no beta, what are you regressing when you say regress the company's excess return to market? If a company has returns, then by definition there's a beta!
For private companies or to use comps' beta, first calculate the average (or median) of the levered, observable market betas of publicly traded comps and then using the Hermada beta equation, unlever the beta and then re-lever the beta using your company or your target capital structure weights. The Hermada "all-equity" beta equation is: Unlevered beta = [levered beta / [1+(1-tax rate) x (debt to equity ratio + preferred to equity ratio)] - assumes preferred is tax deductible. If preferred is not tax deductible, isolate preferred outside of the ratio as follows: Unlevered beta = [levered beta / [1+(1-tax rate) x (debt to equity ratio) + preferred to equity ratio]. Read More