M&A course

Corporate valuation

2The following slides are a slight extract of a detailed course that has been taught for 7 years in 2 HEC Paris' programs (Master in Financial Economics and CEMS)
  • Listed peers
  • M&A peers
  • DCF
  • Net asset value and Sum of the Parts

Fine-tuning of the perpetuity growth rate

The final perpetuity growth rate in a DCF can't necesserally be looked uon as the GDP's. Indeed, the expected growth of the firm is not that of the economy.

The following document explains how to have a perpetuity growth rate in line with the company's (or industry's) expected growth rate by the market


Listed peers approach

Preliminary valuation approach of Swatch based on a simple sample of 2 listed peers: LVMH and Richemont.

  • Financial information, based on a Reuters' consensus of brokers, for the firm to be valued and its peers. The brokers consensus is taken from the Zonebourse website
  • Calculation of customary multiples (EV/Sales, EV/EBITDA, EV/EBIT, P/E) and application to the corresponding aggregates of the firm to be valued

  • Justification of the peers' selection, reminding that Swatch is a luxury group, and not only the manufacturer and distributor of plastic watches
  • Presentation of the outputs, in a table and in a graph, and provision of comments on the discrepancies between the outputs of the various valuations

Movie that presents how to prepare a graph to summarize the outputs

Tender offers

  • Paid in cash
  • Paid in shares
  • Mixed offers
Underlying Excel model


It is often hard, for the external advisor, to assess the synergies that will be developed after a contemplated deal. These synergies will be estimated in the background of workshops that will be attended by the bidder's and the target's professionals.

However, it is possible to determine the required pre-tax synergies to get an EPS accretive deal. These preliminary synergies will have to be validated by the bidder's management


Underlying Excel model


Movies on the structuring of a LBO :

1. Target’s income statement with no interests as they depend on the net debt which will be in the balance sheet to come. This income statement is based on a Reuter’s consensus of brokers from sales to EBIT;The assumptions for the soft landing are:
 a. Linear phasing of the growth of sales
 b. Sustainability of the EBITDA margin and the D&A ratio of the brokers’ last year
 c. 25% corporate tax rate

2. Cash flow statement to be looked upon as the change in net debt 
To get it:
CF=net income-dividends based on a 100% pay out rate applied to the previous year’s net income + D&A - net Capex - Change in WCR
For Capex: linear phasing 
For WCR in the balance sheet: sustainability of the 2018 WCR/sales ratio 
Then preparation of the balance sheet 

3. Business plan of the holding company

This includes the search of the appropriate maximum acquisition debt which enables the holding’s cash balance to be always positive
Otherwise (negative cash balance), thé holding runs into debt via an overdraft which is not possible based on the loan agreement


4. Finally, calibration of the holding’s capital, subscribed by the PE fund so that its IRR is 20% over 3 years


Underlying Exel model

The following documents is a set of slides that would presented in the background of a pitch to a client of an investment bank:



Slides on the main features of an IPO


Capital increase

Motivations, principles of rights issue and capital increase with no right


Retirement provisions

Principles and numerical examples


Excel model


  • Economic Value Added and Market Value Added according to Stern Stewart
  • Total Shareholder Return and rankings by the Boston Consulting Group based on the 1996-2000 period



  • Rating agencies
  • Methodology according to Standard and Poors (S&P) and to Scope Ratings
  • S&P's transition matrix 
  • Scoring

Convertible bonds

Specific terminology
Conflicts resolution


Straight bonds



Shares buyback

The shares buyback enables to change the financial structure : the operation enables to replace equity by debt, as the buyback is financed by debt and the repurchased shares are cancelled.
It also enables the firm's value to be increased by the tax shield that is generated thanks to the tax deductibility of interests.
When the buyback is announced, the market integrates the value of the tax shield: the value of the firm's assets and therefore its equity are increased accordingly.
When the buyback is done, the market cap is reduced by the amount of the cancelled shares but the share price is no more changed.
The proof is provided in the following handout


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