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Confidential

V l i h dValuation methodsUniversitá di BergamoThursday 9 December 2010Thursday, 9 December 2010

Agenda

Valuation techniques

Accretion/dilution analysis

O h h i M AOther themes in M&A

Getting into investment bankingGetting into investment banking

Confidential / Draft

1

ValuationSome preliminary conceptsp y p

Equity ValueValore di competenza degli azionistiAltri nomi: Capitalizzazione, Capitalizzazione di mercato, Market Value, Market Cap

Enterprise ValueInclude tutte le fonti di capitale: equity, debito, azioni risparmioAltri nomi: Valore d’impresa, Transaction Value, Total capitalization, etc.


2



3

Net Debt: Market Value of Debt – Cash + Minority Interests


EBITEarnings Before Interest and TaxesIt is a measure of income independent of capital structure (useful when comparing operating performances of different companies)

EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization“Quick and Dirty” surrogate for operating cash flow …… but there are shortcoming (what?)


4

ValuationSome preliminary concepts

Income Statement Cash Flow Statement

p y p

Income Statement+ Sales- COGS

G P fi

Cash Flow Statement+ Net income+ D&A

/ Ch W ki C it l= Gross Profit- SG&A= EBIT

I t t E

+/- Change Working Capital+/- Non cash itemsCash From Operations

CapEx- Interest Expense= EBT- Taxes= Net Income

- CapExCash From InvestmentEtc.Cash From Financing= Net Income Cash From FinancingTotal Cash Flow


5


Treasury Stock Method

Market Value of EquityP i h Dil t d Sh O t t diPrice per share x Diluted Shares OutstandingDiluted Shares Outstanding =

+ Basic Shares*+ In the money options* (options whose strike price is lower than the share price)- Shares the company can repurchase (Strike price * Number of

ti / Sh i )options / Share price)

Importante perche’ altrimenti ci si dimentica che altri hanno quote dell’azienda e che pero’ l’azienda avra’ dellequote dell’azienda e che pero’ l’azienda avra’ delle

entrate di cassa


6Source: most recent company’s filings

ValuationSome preliminary concepts

Treasury Stock Method

p y p

How?


7

Valuation techniquesOverview

In corporate finance there are three main valuation methods:

Multiples DCF Valuation LBO

C f f C f

Descrizione

Confronta indici finanziari dell’azienda target con imprese simili (quotate in borsa/recentemente vendute)

Calcola l’NPV dei flussi di cassa futuri dell’azienda in un certo orizzonte temporale più il valore dell’azienda al termine dell’orizzonte

Determina la Valuation a partire dal tasso di rendimento atteso sul capitale e dal massimo indebitamento possibilevendute) termine dell orizzonte

temporale stessopossibile

Facilmente applicabile Teoricamente la miglior Facilmente applicabile in caso

Pro

pp

Confronta l’azienda target con aziende simili

gmisura del valore di una azienda

ppdi “rough and dirty valuation”

Metodo di Valuation standard per i fondi di Private Equity

ControSpazio di errore in: scelta dell’indice finanziario, scelta delle aziende simili, …

Forte dipendenza dalle previsioni finanziarie

Ri hi d iù l d li l i

Molto complesso in pratica

delle aziende simili, …Richiede più lavoro degli altri metodi


8



Multiples

DCF

LBOLBO


9

Valuation techniques | MultiplesOverview

Stage 1 Stage 2 Stage 3

Identificare aziende quotate/vendute simili

Definire il multiploadatto a valutare Stabilire il range dei

multipliall’azienda target l’azienda target multipli

Identificare aziende simili:Settore industrialeRendimento (ROE)Rischio (D/E)

Identificare il multiplo adatto:Enterprise Value/RicaviEnterprise Value/EBITDAEnterprise Value/EBIT

Costruire un range di valori del/i multiplo/i piu’ adatto/i

Rischio (D/E)Crescita (Ricavi/Utili)

Enterprise Value/EBITValore equity/UtileValore equity/Valore libro*


10Note: commonly used for financial institutions

Valuation techniques | MultiplesOverview

Trading

Equity Multiples

Use of data from public companiesM lti l t l

Enterprise Multiples

Use of data from public companiesM lti l tComparables Multiple: numerator only

includes “equity value”, denominator is after interest expense, preferred dividends

Multiple: numerator includes also debt and preferred stock, denominator is before interest expense andpreferred dividends interest expense and preferred dividends

Transaction

Equity Multiples

Use of data from recent M&A deals

Enterprise Multiples

Use of data from recent M&A dealsTransaction

ComparablesM&A dealsMultiple: numerator only includes “equity value”, denominator is after interest expense and

M&A dealsMultiple: numerator includes also debt and preferred stock, denominator is before

preferred dividends interest expense and preferred dividends


11

Valuation techniques | MultiplesCategoriesg

Transaction vs. trading multiplesUsually the transaction multiples will be higher because of control premium (which in turn reflects potential synergies)

Equity vs. enterprise multiplesq y p pEnterprise multiples do not consider companies’ financial structures: therefore the comps universe for enterprise multiples is usually larger than for equity multiples (because highly levered companies can hardly be compared to equity funded companies)compared to equity-funded companies)


12

Valuation techniques | MultiplesPublic multiplesp

Finding the comparable universePrevious analysis of other bankers (industry groups)Company’s view from public documents

Competition section in the prospectus or other filings (10K, annual report, etc.)

Equity reports, S&P, Value Line, BloombergIndustrial classification

SIC codes


13

Valuation techniques | MultiplesPublic multiplesp

Indicatore di valoreMultiplo =

Indicatore di performanceMultiplo =

Dove:Indicatore di valore puo’ essere:

Market Value of Equity : calcolato utilizzando il Treasury Stock MethodEnterprise Value: Market Value of Equity + Net Debt (Market Value of Debt (come proxy si puo’ usare il book value) – Cash + Minority Interests)

I più comuni Indicatori di Performance sono Ricavi, EBIT, EBITDA, Utili e Valore di libro dell’equity*libro dell equity


14Note: commonly used for financial institutions

Valuation techniques | MultiplesPublic multiples

Valore dell’equity (P)Enterprise Value (EV)

p

Considera aziende con un simile grado di indebitamento

q y ( )

E’ indipendente dalla struttura finanziaria

p

Prende in

Utili

Miglior proxy per

EBITDA

Utile quando

Ricavi

Utile in financial

Valore libro

Piu’ fine

EBIT

considerazione la redditività

Gli utili non sono sempre una

il flusso di cassa Non considera variazioni del

capitale working

sono disponibili poche

informazioniNon considera la

institutions indicatore di redditivita’ per

l’Enterprise Value p

buona proxy per il flusso di cassa

p gcapital e capital

expendituresredditività


15

Valuation techniques | MultiplesAn example

Dati azienda da valutare

p

Ricavi: $3.5 BEBITDA: $520 M

EBIT: $460 MNet Debt: $660 M

Multiplo Media settore Valore azienda Valore equityMultiplo del multiplo target implicito implicito

EV / Sales 1x $3.5B $2.8B

EV / EBITDA

EV / EBIT

8x

10x

$

$4.1B

$4.6B

$

$3.5B

$4.0B

Average $4.1B $3.5B

Range $3.5B-$4.6B $2.8B-$4.0B


16

Valuation techniques | MultiplesQuiz

Drivers of multiplesSize

Direction of the driver?SizeRisk

Operational: marginsFi i l dit tiFinancial: credit ratios

Growth


17

Valuation techniques | MultiplesQuiz

Drivers of multiplesSize

Direction of the driver?SizeRisk

Operational: marginsFi i l dit tiFinancial: credit ratios

Growth


18

Valuation techniques | MultiplesValues across industries

P/E multiples offered(1997-2001 average)

34.335

(1997 2001 average)

Average = 24.425.924 5

30

24.5 24.1 24.1 24.022.8

21.920.4

18 820

25

18.8 18.5

15

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19Source: Mergerstat Review, 2002

Valuation techniques | MultiplesValues across time

P/E multiples offered(avg across industries)

26.227.4

30

(avg. across industries)

22.724.4 24.5 23.8

26.225.1 24.3 23.8

21.6

2020

10

01992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0



Valuation techniques | MultiplesValues by typology

EBITDA Multiple

EBIT Multiple

Earnings Multiple

y yp gy

30

Multiples offered (2001)Earnings Multiple

20

Avg. across Industries

EBITDA: 8 220 EBITDA: 8.2EBIT: 10.1Earnings: 21.6

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Valuation techniques | MultiplesTransaction multiplesp

Determining the deal list• Operations• Financial Aspects• Timing (usually in the last 3-5 years)• Size• Consideration • Characteristics of the deal (hostile/friendly, etc.)• Market conditions


22



Multiples

DCF

LBOLBO


23

Valuation techniques | DCFOverview

The value of the firm is obtained by discounting expected cashflows to the firm, i.e., the residual cashflows after meeting all operating expenses and taxes, but prior to debt payments, at the weighted average cost of capital,but prior to debt payments, at the weighted average cost of capital, which is the cost of the different components of financing used by the firm, weighted by their market value proportions

∑n=t FirmtoCF

where:

CF t Fi E t d C hfl t Fi i i d t

∑1=t

tt

WACC)+(1Firm toCF=FirmofValue

CF to Firmt = Expected Cashflow to Firm in period t

WACC = Weighted Average Cost of Capital

A firm includesA firm includes not just the equity, but all claim holders. The

cash flow to the firm is the lle tive a h fl w

Pre-debt cash flow (FCF)

Expected growth in operating earnings (EBIT)

Firm is in stable growth Grows at constant rate forever

the collective cash flow that all claim holders make from the firm,

and it is discounted at

CF1

Terminal Value.....CF2 CF3 CF4 CF5 CFn

Value of Firm

the weighted average of their different costs

Discount Rate: firm cost of capital (WACC)

Length of Period of High Growth


24


Steps in Cash Flow Estimation

oEstimate the current earnings of the firmoIf looking at cash flows to the firm look at

Roadmap from Reported to Actual Earnings

oIf looking at cash flows to the firm, look at operating earnings – i.e. before any payment to providers of capital - after taxes

oConsider how much the firm invested to create future growth

Operating leases- Convert into Debt- Adjust Operating

Income

R&D Expenses- Convert into Asset- Adjust Operating

Income

Firm’s history

Comparable firms

goIf the investment is not expensed, it will be

categorized as capital expenditures. To the extent that depreciation provides a cash flow, it will cover some of these expendituresI i ki it l d l

Normalize Earnings

Cleanse operating items of- Financial Expenses- Capital Expenses

oIncreasing working capital needs are also investments for future growth

FCF is cash flow to all claimholders in the firm

Earnings Capital Expenses- Non-recurring Expenses

EBIT (1- tax rate)- (Capital Expenditures - Depreciation)- Change in non-cash Working Capital= Free Cash Flow to Firm (FCF)

Measuring Earnings

Ta avi f i t t a t d t hTax savings from interest payments do not show up in the FCFs because they have already been counted in the cost of capital (in the use of the after-tax cost of debt). If you add the interest tax benefits to the

FCFs, you will double count the benefit


25


Enterprise Value* Equity ValueEnterprise Value*

Estimate Free Cash Flow to the Firm (FCFF)

Equity Value

Estimate Free Cash Flow to the Equity (FCFE)Firm (FCFF)

Discount them at the WACCTV: Use an Enterprise multiple (EV/EBITDA)

Equity (FCFE)Discount them at the Cost of Equity (ke) TV: Use an Equity multiple (P/E,(EV/EBITDA) TV: Use an Equity multiple (P/E, P/Book)

Be consistent! For example: if you use FCFF, then discount them at the WACC and use an Enterprise Multiple for the

Terminal Value.


26Nota: e’ possibile sottrarre Net Debt daEnterprise Value per ottenere Equity Value


Calcolare CalcolareStimare Calcolare cash flow

Calcolare terminal value

Calcolare cash flow totale

Stimare costo del capitale

Prevedere performance

Calcolare NPV

• Stimare costo del debito

• Stimare

• Analizzare performance storica attraverso

• Utilizzare EBIT come punto di partenza

Calcolare terminal value utilizzando i metodi:

• Aggiungere terminal value al FCF previsto

• Scontare i flussi di cassa totali indietro fino aStimare

costo dell’equity

• Calcolare WACC

attraverso ratios

• Comprendere posizionamento strategico

partenza• Calcolare

Free Cash Flow (FCF)

metodi:• Perpetuity• Exit

Multiples• Valore di

previsto nell’ultimo anno

indietro fino a oggi usando il costo del capitale

• Testare il (Weighted Average Cost of Capital)

• Prevedere valori delle singole voci di CE e SP

• Sanity check

libro• Valore di

liquidazione

risultato eseguendo delle analisi di sensitività

• Sanity check dei CE/SP prospettici

Let’s focus on the Enterprise Value DCF!


27

Valuation techniques | DCFCost of capital (WACC)p ( )

Investimenti soggetti a maggior rischio devono offrire maggiori rendimenti per essere attraenti

Se due investimenti promettono lo stesso rendimento ma hanno di i fili di i hi l i i ldiversi profili di rischio, qualunque soggetto economico razionale preferisce l’investimento meno rischioso

La formula per il calcolo del costo del capitale è:

WACC = ke x (E/(D+E)) + kd x (1-T) x (D/(D+E))

ke = costo dell’equitykd = costo del debitoE = valore di mercato dell’equityE = valore di mercato dell equityD = valore di mercato del debitoT = aliquota fiscale


28

Valuation techniques | DCFCost of capital (WACC)

Valore Valore CalcolareCalcolare Calcolare

p ( )

Valore mercato equity

Valore mercato debito

Calcolare aliquota fiscale

Calcolare costo dell’equity

Calcolare costo del debito

WACC

Calcolare Risk Free RateCalcolare

Calcolare tasso d‘interesse sul debito

Valore attuale dell’azione moltiplicato il numero di

Il valore di libro del debito è una buona proxy

Dividere l’importo delle tasse per l’utile lordoCalcolare

Market Risk PremiumCalcolare tasso di

debito esistente

numero di azioni esistentiSe l’azienda non è quotata,

buona proxy del valore di mercato del debito

l utile lordo

volatilità () usare P/E di aziende quotate simili


29

Valuation techniques | DCFCost of equity

Investimenti in equity di aziende soggette a maggior rischio

q y

devono offrire maggiori rendimenti per essere attraentiIl profilo di rischio di due aziende dipende dal tasso di volatilità () ovvero da quanto il valore di una azienda risponde alla variazione del mercato

La formula per il calcolo del costo dell’equity è:

ke = RFR + x (rm – RFR)

RFR = tasso di rendimento senza rischio (es. BOT, CCT = 5%)( , %)= tasso di volatilità legato all’area di business dell’investimento

rm = tasso di rendimento richiesto in condizioni di rischio (es. tasso di rendimento medio negli ultimi 30 anni della borsa USA: 13%)


30

Valuation techniques | DCFCost of equity

CalcolareCalcolare

q y

Calcolare tasso di volatilità

Calcolare RFR

Calcolare Market Risk Premium

ke

Usare il T-Bond USA a 10 anni per paesi

Usare media di lungo periodo della differenza fra

Per azienda quotata, prendere media dellepaesi

adeguatiUsare titoli di stato solo se il rischio

differenza fra rendimento del mercato e rendimento senza rischio

media delle migliori fontiPer azienda non quotata, individuare

di default del paese in questione è minimo

Per gli USA, Copeland, Koller e Murrin suggeriscono 5 6% (media

aziende simili e calcolare unleveredCalcolare il dell’azienda5-6% (media

geometrica 1926-1993)

dell’azienda target usando il tasso di indebitamento dell’azienda target stessa


31

Valuation techniques | DCFBeta

Esistono tre drivers di • Industry characteristics

Cyclical companies have higher betas than non-cyclical firmsFirms which sell more discretionary products will have higher betas than firms that sell less discretionary productsfirms that sell less discretionary products

Operating LeverageOther things equal, the higher the proportion of the total costs of the firm that are fixed, the higher the beta.Th f O ti L iThe measure of Operating Leverage is:

% Change in EBIT / % Change in RevenuesIt measures how quickly the earnings before interest and taxes change as revenue changes. The higher this number, the greater the operating leverage.

Financial LeverageFinancial LeverageAs firms borrow, they create fixed costs (interest payments) that make their earnings to equity investors more volatile.The higher the financial leverage, the higher the beta

L = u (1+ ((1-t)D/E))L = u (1+ ((1-t)D/E))


32

Valuation techniques | DCFHow to forecast

Currentmarket si emarket size

Projectedgrowth

Projectedmarket (vol)

Projectedvolume

Historicalmarket share

Projected Din share

Projectedmarket share

volume

Projectedrevenues

in share

Historicalprice/unit

Projected D

Projectedprice/unit ProjectedProjected D

in price

HistoricalCOGS

ProjectedEBIT

Projectedcosts

HistoricalSG&A

Historicaldepreciation

Projected Din margins

p


33

Valuation techniques | DCFHow to calculate free cash flow

FCFF FCFEFCFF

EBIAT (= EBIT * (1-t))D&A

FCFE

Net incomeD&A+ D&A

- CapEx+/- Change Working Capital

+ D&A- CapEx+/- Change Working Capital

Principal Debt- Principal DebtRepayments

+ Issue of new debt- Preferred Dividends

FCFF

- Preferred Dividends

FCFE


34

Valuation techniques | DCFTerminal value

Il “terminal value” rappresenta il valore attuale dei flussi di cassa in un futuro lontano

E’ necessario determinare l’anno appropriato (n) in cui stimare il “terminal value”:

Il più lontano possibile (per ridurre l’impatto sull’NPV)Il più lontano possibile (per ridurre l impatto sull NPV)Il progetto deve essere a regime (es. capex = ammortamenti, …) in modo tale che l’ipotesi di crescita fissa (es. pari all’inflazione) sia ragionevoleg

Il “terminal value” è trattato come ogni altro flusso di cassaE’ aggiunto al flusso di cassa dell’ultimo annoDeve essere scontato indietro fino a oggi


35

Valuation techniques | DCFTerminal value

Perpetuity Exit Multiple Valore di libro Liquidazione

Il progetto cresce all’infinito

Descr. Il progetto vale il prezzo a cui si puo’ vendere

Il progetto vale il valore di libro delle attività

L’azienda vale il valore di mercato degli assets (menopuo’ vendere

l’azienda nell’anno n

S

delle attività nell’anno n

S

degli assets (meno costi di chiusura) nell’anno n

SUso del

metodo

Teoricamente sopravvaluta il valore (le aziende hanno vita finita), l’effetto del

Stima relativamente aggressiva di continua creazione di valore del progetto

Stima conservativa di continua creazione di valore del

Stima ultra-conservativa di continua creazione di valore dell effetto del

discounting rende il risultato precisoNon usare se il tasso di crescita è

progettoUsare se il tasso di crescita è troppo alto

valore del progetto

valore del progetto

troppo alto

La scelta del metodo dipende dal tipo di azienda: può essere utile utilizzare più metodi e considerare il risultato medio


36

Valuation techniques | DCFNPV formula

Calcolati tutti i flussi di cassa, è necessario scontarli indietro fino a oggi

La formula per il calcolo dell’NPV è:La formula per il calcolo dell NPV è:

NPV NCF(t) / (1 WACC)t TV(T) / (1 WACC)TT

NPV = NCF(t) / (1+WACC)t + TV(T) / (1+WACC)Tt=1

T=1,…,T = orizzonte temporale di previsione flussi di cassaNCF = flussi di cassa

WACC = costo del capitaleWACC = costo del capitaleTV(T) = Terminal Value


37

Valuation techniques | DCFNPV

FCF1 FCF2 FCFn TVn+

Year 0 Year 1 Year 2 Year n Year n+1… …

NPV

¥

FCF1

NPV

=

(1+i) ¹

FCF2

+

FCF2

(1+i) ²

+

FCFn + TVn

…

+

FCFn + TVn

(1+i) ⁿ


38

Valuation techniques | DCFSensitivity analysis

• L’analisi di sensitività permette ai managers di comprendere

y y

• L’analisi di sensitività permette ai managers di comprendere l’impatto delle assunzioni fatte sul risultato della Valuation

- Diverse variabili/elementi avranno diversi impatti sul risultato finale della ValuationValuation

- Ogni variabile può avere un range di valori che porteranno ad un range di risultati

• Usare buon senso per selezionare quali variabili sono più importanti e qual è un corretto range di valori

Possiamo migliorare la precisione della Valuation raffinando le assunzioni delle variabili a cui il risultato è più sensibile

Ri d l t d l i di f l i i t iRivedere la metodologia di formulazione ipotesiAnalisi di dettaglio, per ridurre il range di valori delle variabili più importanti


39

Valuation techniques | DCFSensitivity analysisy y

Sensitività

• Più del 50% dell’NPV complessivo deriva dal terminal value; perciò la metodologia di calcolo del terminal value e le variabili utilizzate nelcalcolo vero e proprio devono essere selezionate con attenzionecalcolo vero e proprio devono essere selezionate con attenzione

• Piccoli cambiamenti nel WACC possono modificare notevolmente ilrisultato complessivo della Valuation p• Considerare dei range

• Importante capire quanto le singole variabili operative impattanoImportante capire quanto le singole variabili operative impattanol’NPV


40

Valuation techniques | DCFSensitivity analysis exampley y p

Tasso di crescita perpetuo per TV (g)

NPV 3.0% 4.0% 5.0% 6.0%

12.0% $147.4 $155.9 $166.8 $181.412.0% $147.4 $155.9 $166.8 $181.4

12.5% 139.4 146.7 155.8 167.8

13.0% 132.3 138.5 146.2 156.2

13.5% 125.8 131.2 137.8 146.2

WA

CC

13.5% 125.8 131.2 137.8 146.2

14.0% 119.9 124.6 133.3 137.4


41


Currentmarket size

Projectedgrowth

Projectedmarket (vol.)

Earnings inyear n

growth

Historicalmarket share

Projected Di h

Projectedmarket share

Projectedvolume

Projectedrevenues

TerminalValue*

P/E(industry)

P/Ediscount

in share

Historicalprice/unit

Projected Din price

Projectedprice/unit

revenues

ProjectedEBIT

Projected

Projectedcosts

HistoricalCOGS

HistoricalSG&A

ProjectedCAPEX

Projecteddepreciation

Free CashFlow DCF

ProjectedD i WC

Projected Din margins

Projectedtax rate

Debt

Avg. yieldon debt O/S

Historicaldepreciation

D in WC

Kd

E i

WACC

Debt

Tax rate

Rf

Equity

Ke

E(Rm)

b


42* Assuming to use the P/E ratio methodology

Valuation techniques | DCFAn examplep

Il modello Excel di seguito descritto ha lo scopo di mostrare come integrare i concetti del DCF in un vero foglio di lavoro

C i i l i i d l CE d ll’ i dCominciamo con la previsione del CE dell’aziendaPrimo, utilizziamo informazioni di mercato per stimare i ricaviSecondo, consideriamo poi i costi di produzione e di periodo

P i t i l SP i i l l l il F C h Fl (FCF)Poi costruiamo lo SP previsionale per calcolare il Free Cash Flows (FCF)

Usando il WACC dell’azienda, scontiamo i flussi di cassa appena calcolati per ottenere il valore complessivo

Utilizzando un range di tassi di scoonto (WACC) e un range di tassi di crescita perpetui (g), otteniamo la matrice di sensitività

A questo punto l’esercizio di valutaizone è completato e si entra nella fase negozialeq p p g


43

Valuation techniques | DCFAn example | how to forecast

Market Data &

p |

Market Data & Trends

Pro-formaProfit & Loss

Pro-formaBalance Sheet

Net income

Pro-formaCash Flow

EBIATDWC, Capex

Cash Flow


44

Valuation techniques | DCFAn example | forecasting revenuesp | g

Market size in Sales=x Price per x Market shareunits Sales=x units x


45Note: shaded areas represent information to be input

Valuation techniques | DCFAn example | forecasting income statementsp | g



Valuation techniques | DCFAn example | forecasting balance sheetsp | g



Valuation techniques | DCFAn example | forecasting cash flow statementsp | g



Valuation techniques | DCFAn example | calculating WACCp | g



Valuation techniques | DCFAn example | calculating the EV rangep | g g





Multiples

DCF

LBOLBO


51

Valuation techniques | LBOOverview

FASE 1 FASE 2 FASE 3

Calcolare il massimodebito sopportabile

Calcolare il valoredell’azienda target

Calcolare il valoreiniziale dell’azienda

dall’azienda target all’uscita target


52

Valuation techniques | LBOEV target at exitg

Valore i d

Stima CE Anno Valore i dazienda

all’uscitaprospettici d’uscita

C C

azienda all’uscita

SCostruire CE futuri

Stabilire orizzonte temporale (3-5 anni)

Definire multiplo d’uscita (su EBIT o EBITDA)Moltiplicare indicatore diindicatore di performance nell’anno d’uscita (es. EBITDA al 5-to anno) per multiplo ) p pd’uscita


53

Valuation techniques | LBOCalculating EV/Equity value at entry

Valuation LBO – VALORE INIZIALE AZIENDA TARGET

g q y y

Valore it

Valore i d

Valore equity Valore equityequity iniziale

azienda all’uscita

q yall’uscita

C

Valore equity iniziale

S SCalcolato prima

Sottraggo al valore dell’azienda il valore del debito all’uscita

Sconto valore equity all’uscita indietro all’anno iniziale con l’IRR desideratoall uscita

In prima approssimazione il valore del debito all’uscita

desiderato

puo’ essere uguale al massimo debito sostenibile (no i tripagamento

debito)


54

Valuation techniques | LBOAn example

1997(F)$

LBO Target Inc.

1998(F)$

1999(F)$

2000(F)$

Income

p

$1,000$100

$1,100$110

$1,200$120

$1,300$130

RevenueEBITDA

$100AssetsAccounts

St 1 St 2&3

$150$200

receivableInventory PP&E

Net Debt/ EBITDA

Net Debt

Step 1 Steps 2&3

Exit year enterprise value– ($130) x 7(x)

Exit year equity value

$9105x

$500Exit year equity value

– ($910-$500)

Initial equity required– $410/[(1+35%)^3]

$410

$167?

Total capitalization (valuation)– $167+500

Implied EBITDA Multiple$667/$100

$667

6 67– $667/$100 6.67x

Check!


55

Valuation techniques Putting it all together

85

US$

g g

80

85

70

75

65

70

55

60

Public Comps M&A comps DCF LBO

Il “football field” e’ un ottimo strumento per comunicare i risultati dell’analisi


56

Agenda






57

Accretion / dilution analysis Definitions

Fondamentalmente l’analisi “Accretion/Dilution” (altrimenti nota come mini-merger analysis”) permette di capire se il deal, percome mini merger analysis ) permette di capire se il deal, per l’azienda acquirente, e’:

Accretive (EPS aumenta come risultato del deal)Dilutive (EPS diminuisce come risultato del deal)Neutral (EPS non cambia dopo il deal)

L’analisi “accretion/dilution” non e’ l’unica considerazione quando si valuta un M&A deal. Infatti bisogna anche considerare:

Intrinsic value (esempio: e’ possibile comprare una azienda a un prezzo molto piu’ basso del suo valore e avere deal dilutive)Multiple expansion/contraction (esempio: un azienda low-tech che compra un’azienda high-tech in un deal dilutive)Strategic positioning

Accretion/dilution e’ solo una delle analisi in un M&A deal, ma molti CEOs saranno scettici verso dilutive deals


58

Accretion / dilution analysis Overview

L’analisi “Accretion/Dilution” (altrimenti nota come mini-merger analysis”) permette di analizzare la posizione finanziariaanalysis ) permette di analizzare la posizione finanziaria dell’azienda acquirente. In particolare:

Effetto su EPS (Earnings Per Share): importante per gli analistiGrado di indebitamento pro-forma: importante per credit ratingQuota azionaria pro-forma: importante per azionisti di controllo

L’analisi “Accretion/Dilution” permette di capire:p pIl massimo prezzo che le possibili aziende acquirenti sono disposte a pagare (in generale e’ il prezzo a cui il deal e’ EPS neutral)La perfetta “form of consideration” (cash, stock, mix)Il livello di sinergie richieste per una EPS-neutral transactionL’impatto sulla capital structure deal deal (e quindi l’impatto sui credit ratings)

Accretion/Dilution analysis ha piu’ scopi della Valuation


59

Accretion / dilution analysis Accounting note

Secondo la SFAS 141 (7/1/01): negli USA il “purchase method” deve essere applicato a tutte le “business combinations”

g

deve essere applicato a tutte le business combinations (merger-of-equals or outright acquisitions, stock or cash, etc.).Il prezzo dell’azienda acquisita viene cosi’ allocato all’attivo di stato patrimoniale dell’azienda acquirente:p q

Net tangible assetsOther intangible assets (difference between fair market values of the assets bought and net tangible assets)Il rimanente e’ attribuito a ammortamento (“goodwill”)

Secondo la SFAS 142: l’ammortamento del goodwill non sara’ piu’ ammortizzato annualmente, ma dovra’ solo superare un “impairment test” annuale.

L’ammortamento dovra’ essere svalutato (write-down) se il fair market value degli assets e’ minore del book value (compreso goodwill)value degli assets e’ minore del book value (compreso goodwill)


60

Accretion / dilution analysis Accounting noteg

Fair MarketFair Market Value of the

Acquired Company’s

Assets


61

Accretion / dilution analysis Example I | all share acquisition

Company A (“Acquiror”) buys company T (“Target”)

p | q

Deal is accretive!


62

Accretion / dilution analysis Example I | all share acquisition


p | q

A’s P/E Ratio is higher than B’s!


63

Accretion / dilution analysis 100% stock offers

In a 100% Stock offer, relative P/Es of Acquiror and Target matter!

The deal is ACCRETIVE when the P/E of the acquiror is higher than the P/E of the offer (=P/E of the target * (1+premium))*

Intuitivamente: l’azienda acquirente paga per l’azienda acquisita con unaIntuitivamente: l’azienda acquirente paga per l’azienda acquisita con una valuta “piu’ pregiata” riducendo di conseguenza l’exchnage ratioL’azienda acquirente deve emettere meno nuovi azioni

The deal is DILUTIVE when the P/E of the acquiror is lower than the P/E of the offer (=P/E of the target * (1+premium))*

Intuitivamente: l’azienda acquirente paga per l’azienda acquisita con unaIntuitivamente: l azienda acquirente paga per l azienda acquisita con una valuta “meno pregiata” aumentando di conseguenza l’exchnage ratioL’azienda acquirente deve emettere piu’ nuovi azioni

In general companies with higher P/Es are more likely to do 100%In general, companies with higher P/Es are more likely to do 100% stock offers than companies with lower P/Es


64* Note: premium was 0% in Example 1

Accretion / dilution analysis Neutral deals

Qual e’ il break-even price che company A e’ disposta a pagare per un’azione della company B?pagare per un azione della company B?

The deal is NEUTRAL when the P/E of the acquiror is equal to the P/E of the offer (=P/E of the target *equal to the P/E of the offer (=P/E of the target * (1+premium))• P/E of the acquiror = 20• P/E of the target = 15• P/E of the target = 15

• 20 = 15 * (1+premium)• Premium = 33%• Purchase offer for Company’s B share: 60 US$ x (1.33) = 80 p y $ ( )

US$


65

Accretion / dilution analysis Example I | all share acquisition | neutral deal


p | q |

Deal is neutral!


66

Accretion / dilution analysis Example II | all cash


p |


67

Accretion / dilution analysis 100% cash offers

In a 100% Cash offer, the interest rate on the debt of the Acquiror matters!matters!

RULE OF THUMB

The deal is ACCRETIVE when the P/E of cash for the acquiror (=1/(r*(1-T))) is higher than the P/E of the offer (=P/E of the target * (1+premium))*(1+premium))*

Intuitivamente, il debito dell’azienda acquirente ha un rendimento richiesto minore delle azioni dell’azienda acquisita

The acquiror will make a 100% offer when the P/E of cash for the acquiror (=1/(r*(1-T))) is higher than the P/E of the stock of the acquiror itselfacquiror itself

Intuitivamente, il debito dell’azienda acquirente ha un rendimento richiesto minore delle azioni dell’azienda acquirente (e quindi una Valuation piu’ alta)


68* Note: premium was 0% in Example 2

Accretion / dilution analysis Sensitivity analysisy y

Company A is better off by using cash rather than stock (obviously is better to pay a lower premium rather than a high one)


69

Accretion / dilution analysis Example III | shares and cash


p |

ReasonableReasonable values of the

deal characteristics


70

Accretion / dilution analysis Synergies

Si puo’ intuitivamente spiegare il concetto di sinergie con la frase “1+1=3”

y g

1+1=3

Ci sono 3 generi di sinergie:Sinergie di costo (altrimenti dette “hard synergies”)Sinergie di costo (altrimenti dette “hard synergies”)

Costi fissi (SG&A, PP&E, etc.)Costi variabili (purchasing power, logistics efficiency, etc.)

Sinergie di ricavi (altrimenti dette “soft synergies”)g ( y g )Esempi: cross-selling, sviluppo nuovi prodotti, etc.

Sinergie negativeEsempi: perdita di clienti (caso dei grandi bank mergers), perdita di manager importanti etcimportanti, etc.

E’ importante stimare le sinergie, perche’ altrimenti si e’ sicuri di perdere l’opportunita’ di acquisizionep pp q


71

Accretion / dilution analysis Example IV | shares and cash | synergies


p | | y g


72

Accretion / dilution analysis Sensitivity analysis*y y

Poiche’ e’ difficile stimare le sinergie, e’ importante avere una tabella riassuntiva che mostra quanto accretive e’ il deal per vari livelli di

sinergie


73

* Note: Same hypothesis as in Example 4

Accretion / dilution analysis Stepping up the analysis

Fino ad ora abbiamo usato il modello di “Accretion/Dilution” solo per il primo anno dopo il deal Normalmente e’ necessario

pp g p y

per il primo anno dopo il deal. Normalmente e necessario analizzare l’accretion/dilution del deal nei 5 anni successivi al deal. Per questo e’ necessario:

I/B/E/S or First Call MEDIAN estimates of EPSI/B/E/S or First Call MEDIAN estimates of EPSApply the EPS to the number of shares outstanding (they may increase because of stock options)Sum the net incomes of the two firms, add synergies and subtract the costs of the deal (interest rate, intangible amortization)Divide the combined company net income times the number of outstanding shares of the combined company (they may also be increasing because of stock options)increasing because of stock options)Compare the forecasted combined company’s EPS with the forecasted company A’s EPS

Perche’ all’annuncio di tanti deals viene annunciato che il deal e’Perche’ all’annuncio di tanti deals viene annunciato che il deal e’ neutral nel primo anno e diventa accretive a partire dal secondo?


74

Agenda






75

Credit ratios

Oltre che “Accretion/Dilution” e’ importante anche considerare la struttura finanziaria pro-forma della combined entity per essere sicuri di non aver assunto troppo debito

Ci sono 3 principali “credit ratios” da considerare:Debito / Capitalizzazione di mercatoDebt / EBITDAEBITDA / Interest Expense

E’ possibile fare una sensitivity analysis di un credit ratio (il piu’ utilizzato e’ probabilmente “Debt / EBITDA” ma per semplicita’utilizzato e’ probabilmente “Debt / EBITDA”, ma per semplicita’ useremo “Debt / Market Cap”) date diverse caratteristiche del deal


76

Credit ratios Sensitivity analysis*y y

Company A could do a 100% cash offer and still have a solid capital structurestructure


77

* Note: Assumed that A and B are debt-free before the deal

M&A history

“Takeover Game”

“Mega Mergers”

“The Roaring 20s”

“Conglomerates”

“The Trust Era”

g

1897-1904 1916-1929 1965-1969 1981-1989 1992-2000


78

M&A historyCont’d

I. The Trust Era - 1897 to 1904Largely Horizontal MergersLargely Horizontal MergersCreation of US Steel, Standard Oil, etc.Ended by the Stock Market Crash of 1904

II The Roaring 20s 1916 to 1929II. The Roaring 20s - 1916 to 1929Fueled by the Post WW1 Economic BoomCreation of GM, IBM, Deere, etc.Ended by the stock market crash of 1929 and the Great DepressionEnded by the stock market crash of 1929 and the Great Depression

III. The Conglomerate Era - 1965 to 1969Diversification driven by consultancy firms (BCG Matrix)Introduction of more restrictive anti-trust lawsGrow earnings via acquisition not re-investment (“boot-strap technique”)Favorable accounting rules (“pooling of interest”)Stock for Stock transactions - stock as an acquisition currencyITT, Litton, WR Grace - Acquisition of firms in diverse industries

Example: ITT made over 250 acquisitions in different industries and b k “I t ti l Thi d Th t”became known as “International This and That”

By the 1970’s, Conglomerates had fallen out of favorThese stock prices traded at a discount to the “sum of the parts”


79

M&A historyCont’d

IV. The Takeover Game - 1981 to 1989Corporate Raiders/Hostile TakeoversCorporate Raiders/Hostile TakeoversBreakup of major conglomerates (Beatrice, bought by KKR)Leveraged Buyouts

Gibson Greeting Cards Caseg$81mm purchase priceBorrow $80mm against the assets just boughtOnly $1mm of equity contributedSold 50% of the equity for $87mm three years later

Junk Bond Financing - Michael Milken and Drexel BurnhamLargest LBO deal ever: RJR Nabisco (bought by KKR for 31 B$)Earnings ultimately slowed, rising bankruptcies, junk market collapsed

V. Age of the Mega-Merger - 1992 to 2000V. Age of the Mega Merger 1992 to 2000Return of the strategic deals (synergies are the goal)Technology, Deregulation and Globalization increased M&A activityUse of highly inflated stock values to buy inflated company valuesg y y p yMost famous deals: AOL-Time Warner, Vodafone-Mannesmann, etc.Ended by the 2001 recession


80

Reasons for M&A

Industry C M&A as Convergence

4% R&D1%

Geographic Roll-up

9%9%

Investors13%

Overcapacity

13%

p y37%

Product LIN_E Extension

36%


81

Source: “Not All M&A Are Alike – and That Matters”by Joseph L. Bower, HBR, 2001

Reasons for M&ACont’d

A checklist of reasons for M&A: Economies of scale (i.e.: Chemical Bank-Chase Manhattan Bank)

Economies of scope (i.e.: Conrail-Norfolk Southern)

Vertical Integration (i e : Disney ABC)Vertical Integration (i.e.: Disney-ABC)

Underutilized assets (i.e.: retailers sitting on precious real estate)

Better management of the target (i.e.: RJR-smokeless cigarette)

Diversification (i.e.: conglomerates)

Vanity acquisition (i.e.: Ford-Jaguar)

The main purpose of M&A is to accelerate earnings growth, because “growth stocks” are in general overvalued by the market


82

Synergies in M&A


83

Synergies in M&ACont’d

DefinitionsIntrinsic Value: sum of future discounted cash flows (without value ofIntrinsic Value: sum of future discounted cash flows (without value of control)Market value: intrinsic value + probability of acquisition * forecasted purchase premiump pPurchase price: intrinsic value + purchase premiumSynergy Value: intrinsic value + present value of synergies

The shareholders of the acquired company own the purchase premium; while the shareholders of the combined company own the difference between the synergy value and the purchase price:

In a 100% cash deal, the owners of the combined company are the owners of the acquiror company: therefore they own 100% of the value created by the deal in excess of the purchase premium paid to the acquired company’s shareholdersacquired company s shareholdersIn a 100% stock deal, the owners of the combined company are BOTH the owners of the acquiror and the owners of the acquired: therefore they share pro-rata the value created by the deal in excess of the

h i id t th i d ’ h h ldpurchase premium paid to the acquired company’s shareholders


84



85


As the prior page shows: 100% Cash: the Buyer’s owners have 100% of the value in excess of the100% Cash: the Buyer’s owners have 100% of the value in excess of the premium100% stock: the Buyer’s owner share the value in excess of the premium

Therefore the intention of the acquiror company to use stock instead of cash signals one or both of the following:

The stock price of the acquiror is higher than its real valueThe stock price of the acquiror is higher than its real valueThe acquiror’s management is not confident that the synergies can be realized (“it is easy to make money in excel!”)

If the stock is not inflated and management is confident about the synergies, then a cash offer may be better than a stock one even if

it less accretive


86

Agenda






87

Getting into investment bankingOverview

Roles in Investment Banking

oThe most senior people, Managing Directors, are in charge of industry/product groups and handle the majority of interaction with clients; 10-20 years experience

oVice Presidents are the next tier down; they oversee the everyday details of transactions and make sure deals go smoothly; 7+ years experience

oAssociates are the upper level of the junior tier; they finalize and proof most of the documents and models necessary to execute transactions; most Associates are either new MBAs from top business schools or analysts promoted after 4 years of highbusiness schools or analysts promoted after 4 years of high performance

oAnalysts are the junior-most level, usually fresh graduates from top schools; they perform the majority of the grunt work or thetop schools; they perform the majority of the grunt work, or the “heavy lifting”


88

Getting into investment bankingA day in the life of an investment bankerWhat kind of a lifestyle / work environment can I expect?

o12-15 hour days, usually some

So what do investment banking analysts do all day?

oPreparation of all documents and memos, from pitch books that go

to prospective clients to offering memoranda for potential investors

y

o12 15 hour days, usually some weekend work as well

oVery high stress: constant pressure to perform, competitive environment,

d d di i

to prospective clients to offering memoranda for potential investors

oBuilding and running financial models that track transaction viability

and predict possible outcomes

U d ti ll i t l d t b d t (i d t t fand demanding superiors

oMulti-tasking: running with 6 projects at once, minimal tolerance for errors

oLots of menial grunt work and

oUpdating all internal databases and systems (i.e. data entry, proof-

reading)

oGeneral administrative chores like setting up conference calls,

copying filing sending faxes arranging deliveries and mostoLots of menial grunt work and micromanagement before you’re trusted to operate without oversight

oMeetings and conference calls

copying, filing, sending faxes, arranging deliveries, and most

importantly…

oGuaranteeing senior

people never look throughout the day, catching up with your real work after 5PM

oIt’s expected that you’ll sacrifice your personal life and health for this

p p

stupid during calls

or meetings – having

all the answerspe so a e a d ea t o t scareer - not for the faint of heart

o 3 meals/day in front of the computer

o Very common to be forcedo Very common to be forced to cancel vacations and miss holidays/birthdays when needs arise


89

Getting into investment bankingHow do I become a candidate?

Getting Inside: The Front Door

On-campus recruiting is the most direct way to get into an

Getting Inside: The Back Doors

None of the I-banks recruit here… where do I go?IB analyst program

Most banks recruit analysts exclusively from top colleges and select MBA programs

oUsually only one recruiting drive per year with very

Non-IB groups supporting investment banking:

oI-banks also need people for the less “sexy” groups, like trust & custody, IT, credit, and administration

Transfer in from the retail side of a large bank:oUsually only one recruiting drive per year with very limited intake (recruit in the fall for summer start dates)

oDespite popular belief, “walk-ins” will get you nowhere

U l ’ i l h i i h

Transfer in from the retail side of a large bank:

oCaptive finance companies, like mortgage, auto finance, and credit card

oSupport functions like risk management or treasury Unless you’re exceptional or have a connection in the business, getting in will be extremely difficult

So what should I do?

Prove yourself on the retail side and then maneuver

/accounting

Non-bank financial institutions:

oSimilar experience/compensation can be gained at large non-bank financial institutionsProve yourself on the retail side and then maneuver

internally

Consider moving to a banking city and utilizing local resources

large non bank financial institutions

oKey industries like insurance & reinsurance, asset management, and leasing, which also offer a deal atmosphere and high finance experience while being more approachable than the bulge bracket banksFocus on positions you’re actually qualified for rather than

flooding the HR department with resumes

Getting in after grad school (MBA)

o3+ years of solid business experience combined with

more approachable than the bulge bracket banks

The financial information industry:

oBanks rely on several outside providers for much of their analysis and information, like Moody’s, S&P,

o3+ years of solid business experience combined with an MBA from a top school is a nearly surefire way to get in as an associate

…or you may need to try one of the back doors

Fitch, Reuters, Factset and others

Performing well in any of these positions can open doors to i-banking, or these fields are great careers on their own


90

Getting into investment bankingThe recruiting processg p

Prepare, prepare,prepare

Get the interview Ace the interviewprepare interview

Learn what investment Go to the I-Banks’ Prepare for behaviouralLearn what investment banking isPrepare a focused resumePrepare a focused cover letter

Go to the I Banks corporate presentations

Talk to the bank’s representativesGet their business cardsFollow-up (thank you

Prepare for behavioural questions

Strenghts and weaknessesEtc.

Prepare for motivationalFollow-up (thank you note)

Ask contacts (obtained through corporate presentations or i d d tl ) f

Prepare for motivational questions

Why do you want to be an investment banker?Why do you want to work for bank xyz?independently) for

“informational interviews”Ask questions about the jobAsk questions about the

work for bank xyz?Prepare for technical questions

FinanceCurrent news

bank


91

Getting into investment bankingThe recruiting process | be prepared

Description

g p | p p

Learn what investment banking is

Read books on I-BankingStay current on the newsTalk to people in “risk-free environment” (i.e. do not ask “stupid

ti ” t b k t b f h k tbanking is questions” to a banker you never met before who works at a bank you would want to work at!): professors, alumni, friends.

Prepare a focused Use a clear structure (i.e. Education, Work Experience, Additional)Use bullet points whenever possible and write CLEARLYN GRAMMAR SPELLING MISTAKES (?!?)resume No GRAMMAR or SPELLING MISTAKES (?!?)Remember, the employer looking at it will think “what can this person do for me?” If the answer is positive, it’s the green light to an interview

Prepare a focused coverl tt

Use a clear structure (who are you, why do you want to work for them, what can you bring)Personalize your cover letter for each employer (look on the their

b it d t t d t d h t th ’ lt iletter web-site and try to understand what the company’s culture is, what do they stand for)No GRAMMAR or SPELLING MISTAKES (?!?)


92

Getting into investment bankingGetting an interviewg

Corporate Presentation Informational Interview

• Listen to the presentation• After the presentation, go up to

the bankers and ask questions• Ask for their business cards and

• Ask for an “informational interview” to the banker you met at the corporate presentation (or that was referred to you by a• Ask for their business cards and

the permission to follow up• Follow up with a thank you note

that was referred to you by a professor, friend, etc.)

• Be punctual when you meet her• Ask questions about the job

A k ti th b k d• Ask questions on the bank and try and understand what the company culture is

It takes a lot of effort to get an interview


93

Getting into investment bankingAce the interview

Typical structure of an interview

Prepare for behaviouralq estions

3 strenghts and 3 weaknessesTell me about a project that you have done that involved analytical thinkingA ti i hi h f il dquestions A time in which you failedA time in which you worked in a teamEtc.

Prepare for motivationalti

Why do you want to be an investment banker?Why do you want to work at bank xyz?Why should we hire you?Etquestions Etc.

Prepare for technicalti

How do you value a company?Walk me through the DCFWhat is the difference between BS and IS?Et

Last don’t forget to ask questionsquestions Etc. to ask questions


94

Getting into investment bankingWhat are investment banks looking for?

Description

g

Hard-worker100 hours/week is not a legendAt least 6 days a week in the office

Are you capable of completing the assignment by the deadline, even if you are dead tired?

Safe hands

Do you get along with others, do you like working with them? There are no lone wolves in investment banking!Team player There are no lone wolves in investment banking!

Analytical mind Do you like numbers, do you like doing analyses on them? Finance is about numbers!


95

I t t B ki C ti M di

The Real Allure of Investment BankingInvestment Banking Compensation - MedianYears AverageExp. Class 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000's0.5 MBA Class $170,000 $150,000 $130,000 $140,000 $160,000 $185,000 $190,000 $200,000 $130,000 $161,6671.5 Associate - 1st Year 248,000 200,000 150,000 170,000 225,000 250,000 260,000 270,000 180,000 217,0002.5 Associate - 2nd Year 357,000 290,000 230,000 190,000 270,000 290,000 300,000 320,000 210,000 273,0003.5 Associate - 3rd Year 496,000 400,000 250,000 250,000 340,000 380,000 400,000 420,000 270,000 356,222, , , , , , , , , ,4.5 Associate - 4th Year 632,000 500,000 280,000 330,000 400,000 460,000 480,000 500,000 330,000 434,6675.5 VP - 1st Year 725,000 540,000 350,000 400,000 550,000 600,000 630,000 660,000 430,000 542,7786.5 VP - 2nd Year 738,000 570,000 390,000 440,000 575,000 700,000 740,000 780,000 510,000 604,7787.5 VP - 3rd Year 977,000 730,000 450,000 480,000 660,000 750,000 790,000 830,000 540,000 689,6677+ Director 1,250,000 800,000 500,000 530,000 700,000 850,000 890,000 930,000 600,000 783,3338+ Managing Director 3,100,100 1,300,000 800,000 750,000 1,200,000 1,500,000 1,580,000 1,660,000 1,080,000 1,441,12210+ Department Head 5,750,000 1,500,000 1,000,000 1,200,000 2,500,000 3,000,000 3,150,000 3,310,000 2,150,000 2,617,778

Source: Investment Dealers' Digest.

Investment Banking Compensation - HighYearsExp. Class 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000's0.5 MBA Class $210,000 $175,000 $150,000 $140,000 $160,000 $185,000 $190,000 $200,000 $130,000 $171,1111.5 Associate - 1st Year 296,000 230,000 200,000 190,000 250,000 290,000 300,000 320,000 210,000 254,0002.5 Associate - 2nd Year 410,000 330,000 260,000 220,000 310,000 340,000 360,000 380,000 250,000 317,7783.5 Associate - 3rd Year 581,000 500,000 315,000 300,000 400,000 430,000 450,000 470,000 310,000 417,3334.5 Associate - 4th Year 780,000 600,000 340,000 400,000 500,000 560,000 590,000 620,000 400,000 532,2225.5 VP - 1st Year 1,020,000 670,000 425,000 490,000 625,000 725,000 760,000 800,000 520,000 670,5566.5 VP - 2nd Year 1,200,000 700,000 475,000 550,000 750,000 780,000 820,000 860,000 560,000 743,8897.5 VP - 3rd Year 1,300,000 800,000 550,000 590,000 800,000 950,000 1,000,000 1,050,000 680,000 857,7787+ Director 1,825,000 900,000 700,000 630,000 900,000 1,100,000 1,160,000 1,220,000 790,000 1,025,0008+ Managing Director 6,000,000 1,800,000 1,200,000 1,200,000 2,500,000 2,700,000 2,840,000 2,980,000 1,940,000 2,573,33310+ Department Head 10,000,000 2,800,000 1,700,000 1,700,000 4,000,000 5,000,000 5,250,000 5,510,000 3,580,000 4,393,333


Investment Banking Compensation - LowYearsYearsExp. Class 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000's0.5 MBA Class $130,000 $110,000 $100,000 $140,000 $160,000 $185,000 $190,000 $200,000 $130,000 $149,4441.5 Associate - 1st Year 220,000 170,000 130,000 140,000 200,000 220,000 230,000 240,000 160,000 190,0002.5 Associate - 2nd Year 303,000 225,000 150,000 160,000 250,000 250,000 260,000 270,000 180,000 227,5563.5 Associate - 3rd Year 421,000 330,000 190,000 210,000 290,000 300,000 320,000 340,000 220,000 291,2224.5 Associate - 4th Year 459,000 340,000 230,000 250,000 325,000 370,000 390,000 410,000 270,000 338,2225 5 VP 1 t Y 552 000 350 000 260 000 270 000 375 000 440 000 460 000 480 000 310 000 388 5565.5 VP - 1st Year 552,000 350,000 260,000 270,000 375,000 440,000 460,000 480,000 310,000 388,5566.5 VP - 2nd Year 620,000 360,000 300,000 320,000 425,000 480,000 500,000 530,000 340,000 430,5567.5 VP - 3rd Year 736,000 520,000 330,000 350,000 500,000 525,000 550,000 580,000 380,000 496,7787+ Director 954,000 600,000 380,000 400,000 550,000 625,000 660,000 690,000 450,000 589,8898+ Managing Director 2,000,000 900,000 480,000 530,000 750,000 850,000 890,000 930,000 600,000 881,11110+ Department Head 3,000,000 1,000,000 650,000 690,000 1,500,000 2,000,000 2,100,000 2,210,000 1,440,000 1,621,111



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Last note

Come prepararsi per le interviste in investment bankingExcel and computer skills (modeling)Excel and computer skills (modeling)Essere al corrente delle news:

Leggere IlSole24Ore (il Financial Times e’ ancora meglio)Online commentary: theDeal.com, fool.com, etc.

Leggere libri su investment bankingBarbarians at the gateMonkey Business

Siti di finanza:Siti di finanza:http://pages.stern.nyu.edu/~adamodar/ (sito web del Prof. Damodaran)http://investopedia.com/ (interesting source of trivia)

Last but more important:Leverage your professors and alumni

Matteo ScudelettiE-mail: ms465@georgetown eduE-mail: [email protected]: +44 7785 384 541


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universitá di bergamo - unibg · zoh h i m aother themes in m&a...

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