FIN7573: Investment Banking & Financial Advisory

Jaime dAlmeida, Adjunct Lecturer

Spring 2015

Thursdays 6:30 PM 9:00 PM | Olin 225

Course Materials:
1. Rosenbaum & Pearl, Investment Banking: Valuation, Leveraged Buyouts, and
Mergers and Acquisitions Required
2. Course Packet with cases and supplemental readings (available in bookstore)
Required
3. Hitchner, Financial Valuation Optional
4. Beaton, Valuing Early Stage and Venture-Backed Companies Optional
Contact Info:

dalmeida@babson.edu (best way to contact)

YahooIM: jaimecdalmeida / Google Talk: jdalmeida / Twitter:In2Markets
Phone: 617-378-9445
Office: Tomasso 302
Office Hours: Thursdays 4:30pm to 6:30pm / Additional hours by appointment

Course overview
This course is designed to provide a practical application of corporate finance skills to a
variety of corporate restructuring transactions. Mergers and acquisitions, initial public
offerings, private equity placements, senior and mezzanine debt issuances, leveraged
buyouts, and other complex financial restructuring transactions are reviewed. We will
explore the economic rationale and process of each transaction, address fairness and
solvency opinions and analyses, and place heavy emphasis on the role of an associate
professional in analyzing each situation. Students will build and apply valuation models
typically used in practice by investment banks, commercial banks, and corporate finance
consultants. The course is designed for those interested in careers in corporate finance or
strategic planning.
Prerequisite: FIN7000 or MBA8510 or completion of the One Year or Two Year
Modules, or the Fast Track Core
Teaching Methodology
The course will be taught using a combination of lectures, case studies and class
discussions. Case studies are an important tool for learning since understanding is greatly
aided by role modeling and pattern recognition. However, to be an effective learning tool,
all cases require you to prepare carefully before class and participate fully in class.

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Learning Objective
By the end of this course students will be able to:

Apply three valuation methods from a financial advisory or street perspective:

Guideline Company Method, Guideline Transaction Method, and Discounted
Cash Flow Method
Apply a model to value equity cash flows in an LBO scenario
Analyze and model a leveraged buyout opportunity
Explain the M&A sales process
Explain the IPO process
Explain the different rights and preferences of preferred stock, and how these
impact valuation
Assess the fairness of a proposed transaction price
Assess the solvency of a business

Grading
Final grades will be based on 2 in-class quizzes, 1 case write-up, 1 final project, and class
participation. All grades are based on individual work. The contribution of each element
is as follows:
In-class quiz 1:
In-class quiz 2:
Case write-up:
Final project:
Class Participation:
Total

15%
15%
25%
30%
15%
100%

Grading is a measure of performance (not effort) and is based on the following scale:
Grade
A
AB+
B
BC+
C
CD+
D

Low
93
90
87
83
80
77
73
70
67
65

High
100
92
89
86
82
79
76
72
69
66

Score

Evaluation
4 Superior Performance
3.67
3.33
3 Clearly Above Satisfactory Performance
2.67
2.33
2 Satisfactory Performance
1.67
1.33
1 Very Poor Performance (Marginally passing)

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DF

60
0

64
59

0.67
0 Failure

Each assignment will be graded on this scale.

ALL ASSIGNMENTS MUST BE POSTED BEFORE CLASS STARTS ON THE
DAY THEY ARE DUE ON BLACKBOARD TO RECEIVE FULL CREDIT.
The quality (and grade) on the assignments is at the instructors discretion. It is a question
of how well I understand your arguments and whether they are logically conveyed. You
will find that managers and investors will judge your work and ideas on their
interpretation of your work, not what you may have intended. It is up to you to ensure
that your writing is clear and unambiguous.
The grading of assignments is done in relation to the rest of the class. In other words, a
B+ is considered to be slightly higher quality than papers receiving a B and slightly lower
quality than those receiving an A-. Occasionally, I am asked to reconsider a grade on an
assignment. While I am open to such requests, assuming there is a compelling argument
for review, please be aware that reconsidered grades can go down as well as up. All
requests will be handled in person so that you can explain your concern. However, in
order to most efficiently handle such concerns, you must submit your argument in writing
with a clear explanation as to why your feel the grade should be reconsidered. I will then
schedule a time for a face-to-face discussion. Furthermore, I will not entertain grading
discussions within 48 hours of receiving a grade this is to ensure that you have had
adequate time to reflect on the grade and my comments so that any subsequent discussion
of the grade will be more productive.
Deadlines are important. Assignments are due before the start of class unless otherwise
indicated. All assignments will be turned in electronically via Blackboard. As such, the
time they are received will be based on the electronic time stamp indicating when the
assignment was sent or posted. It is your responsibility to ensure that submissions are
sent on time and delivered. Late assignments will be reduced letter grade for each day
late; however, letter grade deductions will begin if not turned in at the designated time.
For example, you have an assignment due at the start of class (at 6:30), yet you do not
turn in the assignment until 7:00pm on that day. A letter grade is automatically
deducted for not meeting the initial deadline. An additional letter grade will then be
deducted for each day later after this initial missed deadline.
Class Participation
Class participation will be graded on a 0-4 point scale each day as follows:

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Outstanding Contributor: This person's contributions reflect exceptional

preparation and good listening and conversational skills. The ideas offered are always
substantive and provide major insights and direction for the class. If this person were not
a member of the class, the quality of the discussions would be diminished significantly. (4
points)
Satisfactory Contributor: Contribution in class reflects good preparation. Ideas
offered or questions asked are sound, have relevance to the discussion, and help others
understand the issue better. (3 points).
Marginal Contributor: Contribution in class reflects inadequate preparation. Ideas
offered are not substantive and do not reflect good preparation. The questions asked are
either repetitive or do not add much to the discussion. (2 points).
Not prepared: No contribution to class either from silence or from a lack of
preparation. A warm body who listened but did not add much value to the class. (1
point).
Absent, Late to class by more than 5 minutes or cell phone pager not turned off:
(0 points)
Quizzes
Quizzes are scheduled for the first 30 minutes of class on two dates (see class schedules
below). They will be designed to chart the student's progress during the semester and will
collectively count for 30% of the final grade (i.e., 15% each). Questions will be of the
multiple choice/short answer variety and will generally cover material discussed over the
previous classes just before the quiz. Calculators are permitted and suggested. No
make-up quizzes are available without a valid medical excuse, either for those absent or
for latecomers to class.
Case Write-Up
One case write-up will be due for the Tribune Company, 2007 case on the date
indicated below. Case questions will be posted to Blackboard at least 2 weeks prior to
the due date. Please see the section at the end of this syllabus for a summary of the
grading approach for the case write-up. No group work is allowed on the case write-up.
You should address each of the questions posted on Blackboad. The report can be
narrative or it can answer the questions in a Q&A format. Length should be no more than
2250 words, excluding attachments or exhibits. I don't mind if you single space, doublespace, or 1.5 space. Whatever works for you is fine. The number of pages will obviously
depend on your format. The write-up has to be posted to Blackboard by 6:30pm on the
date it is due to receive full credit. I would appreciate it if you could bring a hard copy
with you to class.

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Final Project
The final project is an individual assignment. The project will consist of selecting a live
transaction where the target company is public and the deal hasnt closed yet. The final
project will be a sell-side Fairness Opinion for the proposed transaction. The deliverable
will include:
1. An opinion letter
2. A PowerPoint deck with 2 sections
a. Section A will include at least the following information: (1) summary of
the proposed transaction, (2) industry overview, (3) company overview,
(4) valuation/opinion summary, (5) DCF key assumptions and result, (6)
Guideline Public Company Method key assumptions and result, (7)
Guideline Transactions Method key assumptions and result, and (8) key
assumptions and results for any other analyses performed;
b. Section B will include any analyses supporting Section A. For example,
calculation of any market multiples, presentation of a DCF analysis,
historical financial analysis, etc.
On the last day of class we will have some individuals present their PowerPoint deck as if
presenting to the board of the target company. The presentation of the findings will not
be graded, only the opinion letter and the contents of the PowerPoint deck.
Please see the section at the end of this syllabus for a summary of the grading approach
for the final project.
Case Study Preparation
Prior to case study days, I will post case questions on Blackboard to assist your
preparation. In addition, I may designate ahead of time one or more students to
summarize the case.
Quality comments are those that move the case discussion forward by:

Revealing important issues

Bringing us closer to some type of decision
Making decisions that are well thought-out, logical and rational
Offering opinions that are well thought-out, logical, and rational; and
Debating or challenging your peers without personal attack

There is no one way to effectively analyze a case. I offer the following as one way to
prepare for class. You are, of course, free to prepare in any way you wish. However, I
cannot emphasize too strongly how important it is that you participate in class. Class
participation not only heightens knowledge absorption, it also provides valuable time
where you will use entrepreneurial thinking and decision making.

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Check to see if there is a text assignment for the class (posted on Blackboard for
each class). Reading assignments are designed to provide a foundation of
knowledge and insight into any particular issue. The reading prepares your mind
to see some of the issues in the case.
Read the case for the first time as a story without stopping to underline or take
notes. This will give you a holistic understanding of the situation before you
become embedded in any judgments.
Read the case a second time. Underline key facts and key issues. Make a note in
the margin or on another piece of paper explaining why you underlined
Categorize the issues and facts.
Listen carefully in class, allowing well-articulated positions to influence your
thinking.
Remember that quality is more important than quantity in class participation.
Save your notes. When you come to see me about something you want clarified or
to discuss your grade the notes will be a powerful support document.

Communication
I will frequently use Blackboard and e-mail to post assignments, distribute handouts, etc.
I may also post spreadsheet exhibits for cases that we analyze. You are responsible for
checking our Blackboard folder before preparing for each class.
Policies on laptops, cell phones, and other technology
Students are expected to maintain appropriate electronic etiquette in class, which
excludes any disruptive or distracting use of the laptop and cell phones, extraneous
communication and websurfing, and otherwise, any activity generating a negative
classroom externality. Failure to abide by this policy will result in a deduction of points
from the class participation portion of the course grade. If you bring a laptop to class,
and you keep it open and on, I ask that you always have Excel ready so that you can
quickly make calculations that may come up in class.
Academic Code
The F. W. Olin Graduate School Academic Code is fully in effect at all times during this
course as is Academic Honesty and Integrity Policy (found at page 53 of the Graduate
Student Handbook).
Accommodations/Disabilities
Any student who feels he or she may need an accommodation based on the impact of a
disability should contact me privately and in a timely fashion to discuss his or her

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specific needs. Students must also contact the Manager of Disability Services at 781239-4508 or in Hollister Hall to coordinate reasonable academic accommodations.
Religious Observances
Any student who faces a conflict between the requirements of a course and the
observance of his or her religious faith should contact the instructor as early in the
semester as possible. In such event, the instructor will provide reasonable
accommodations that do not unduly disadvantage the student.
Name Cards
Please have your name card out every class. This will enable you to get to know one
another quickly and initiate dialogue.

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Class

Topics & Learning Objectives

Student Actions

Topics:

1/22

Introductions

DUE: Identify a recent or current

pending transaction where the
target is a public company

Expectations & Explanations

Deal Analysis using recent/current transaction

Deal types
Motivations
Considerations
Valuation approaches

Data Tools: Using CapitalIQ

Skillset: Excel self-test
2

Objective:

1/29

Prepare a Guideline Company Method valuation

analysis
Topics:
Guideline Company Method
Selecting guideline companies
Calculating financials/multiples
Apply Guideline Company Method to transaction
discussed in Week 1

READ: Rosenbaum & Pearl

Chapter 1
READ: Giving Great Advice
(Course Packet)
READ: MD&A in most recent
10-K for target company
identified in week 1
OPTIONAL READ: Hitchner
Chapter 7
OPTIONAL - COMPLETE:
Excel Self-Training
DUE: List of guideline
companies for target company in
Week 1 transaction.

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Class

Topics & Learning Objectives

Student Actions

Objective:

TAKE: In-class Quiz #1

2/5

Prepare a Guideline Transactions Method

valuation analysis

READ: Rosenbaum & Pearl

Chapter 2

Topics:
Guideline Transactions Method
Selecting guideline transactions
Apply Guideline Transaction Method to
transaction discussed in Week 1
Basis of value
4

Objective:

2/12

Prepare a Discounted Cash Flow valuation

analysis
Topics:
Discounted Cash Flow
Projecting Free Cash Flow

READ: Rosenbaum & Pearl

Chapter 3
OPTIONAL READ: Hitchner
Chapters 5 and 6
DUE: Discounted Cash Flow for
target company in Week 1
transaction.

Weighted Average Cost of Capital

Terminal Value
Mid-year Discounting
5

Objective:

2/19

Understand the purpose, application and

standards of a Fairness Opinion
Topics:
Discounted Cash Flow
Fairness Opinions
Discounted Cash Flow
Market Approach
Synergies

READ: Are Fairness Opinions

Fair? (to be posted on
Blackboard)
READ: SEC Filing re: Fairness
Opinion (to be posted on
Blackboard)
DUE: List of quantitative
analyses performed by each
fairness opinion provider in
posted SEC Filing.

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Class

Topics & Learning Objectives

Student Actions

Objective:

2/26

Understand the M&A Sales Process and related

analyses

READ: Rosenbaum & Pearl

Chapter 6 and 7

Topics:
M&A Sales Process
Fairness Opinions
Accretion/Dilution Model
Merger Agreements
7

Objective:

TAKE: In-class Quiz #2

3/5

Understand LBO fundamentals

READ: Rosenbaum & Pearl

Chapter 4

Topics:
Leveraged Buy Outs
Key Participants

READ: Note on Valuing Equity

Cash Flows (Course Packet)

Characteristics of a Strong LBO Candidate

LBO Financing Returns Analysis
Valuing equity cash flows
8

Objective:

3/12

Analyze a proposed LBO

Topics:
Leveraged Buy Outs
Liquidity and leverage
Solvency Analysis

PREPARE: Analysis of
Flagship Companies (Course
Packet, questions to be posted on
Blackboard )
DUE: Chosen transaction for
Final Project

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Class

Topics & Learning Objectives

Student Actions

Objective:

3/26

Understand the 3 tests of solvency

READ: Valuation Questions

Raised by TOUSA (to be posted
on Blackboard)

Topics:
Balance Sheet Test

READ: TOUSA Decision, p 95103 (to be posted on Blackboard)

Capital Adequacy Test

Ability to Pay Debts Test
Observable Market Value
Solvency Opinions
10

Objective:

READ: Tribune Case

4/2

Analyze a transaction from a solvency

perspective.

DUE: Case Write-Up for

Tribune Company, 2007
(Questions to be posted on
Blackboard)

Topics:
LBOs
ESOPs
Restructuring
Solvency analysis
11

Objective:

4/9

Understand Initial Public Offering fundamentals

Topics:

READ: Googles CEO on the

Enduring Lessons of a Quirky
IPO (Course Packet)

Underwriting

PREPARE: Analysis of
Warburg Pincus and emgs: The
IPO Decision (A) (Course
Packet, questions to be posted on
Blackboard)

Legal requirements

DUE: Warburg DCF

Initial Public Offerings

Roadshows

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Class

Topics & Learning Objectives

Student Actions

12

Objective:

4/16

Understand private placement fundamentals and

complex equity securities

READ: A Note on Private

Equity Securities (Course
Packet)

Topics:
Preferred Stock
Liquidation preference
Pre-money/Post-money
Options theory in private equity
13

Final Project Presentations

4/23

4/30

Make-Up Class ONLY IF NEEDED

OPTIONAL READ: Beaton

Chapter 2, 4
PREPARE: Analysis of
Metapath Software: September
1997 (Course Packet, questions
to be posted on Blackboard)
DUE: Final Project

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Grading Case Summaries & Final Project

A. The "A" Paper or Presentation
An A represents superior work--distinctly perceptive, well developed, carefully
expressed, and adding substantially to the intellectual experience of the audience.
An A assignment:

is based on a perceptive and thought-provoking main idea that substantially

adds to the intellectual experience of the audience

is clearly organized around the main idea--and this organization demonstrates

keen insight into the subject under discussion

contains excellent supporting detail that is well integrated into the assignment

has an appropriately large and varied set of research materials, when research
is required

indicates a mature knowledge of, and sensitivity to, the beliefs, attitudes,
values, interests, and needs of the audience or reader

shows the student's ability to use language in an especially effective manner-precise, meaningful, expressive, vivid, memorable, incisive

is free of distracting elements and elementary errors (e.g., grammar and

spelling errors detract from the effectiveness of written work, lack of eye
contact distracts the listener of an oral presentation)

maintains professional standards in all aspects of the assignment

B. The "B" Paper or Presentation

A B represents very good work--better than average, showing some insight in
thought and expression. A B assignment:

is based on a challenging topic and has a clearly expressed main idea

is above average in its focus and development, but generally lacks distinction
as outstanding

is thoughtfully and clearly organized

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contains a fair amount of pertinent supporting detail, but could be more

effective

uses language that is generally clear and accurate with few distractions

has a good sense of audience or reader--stimulating and challenging them with

new ideas

is generally professional in execution

C. The "C" Paper or Presentation

A C represents work that is competent--it meets the basic criteria of the
assignment, is reasonably clear, and adds a little to the intellectual experience of
the audience or reader. A C assignment:

contains enough information to have some intellectual value, but does not
probe the topic adequately or insightfully

has a main idea that is clear, but poses little challenge to the student or the
audience or reader

has clear and reasonable organization, but is perfunctory, showing little insight
into the subject matter

is expressed in an ordinary and accurate manner, but displays few especially

interesting or effective elements

contains distractions, but not so many that they obscure the sense of what the
speaker or writer is saying

D. The "D" Paper or Presentation

A D represents work that is below average--work that does not meet basic
criteria of the assignment. A D assignment is characterized by any one of the
following:

does not deal with a worthwhile topic

lacks a clear organizational plan

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does not develop its points meaningfully--or develops them in a repetitious,

incoherent, or illogical way

uses language inaccurately or immaturely

shows little or no awareness of audience

has distracting elements whose frequency and nature seriously detract from
the message or may show clear evidence of inadequate preparation

misses a crucial feature of the assignment, such as meeting the time limit for
speeches, page length for essays, research requirements, type of assignment,
etc.

E. The "F" Paper or Presentation

The most common causes for outright failure include the following:

failure to complete an assignment or submit it when due

disregard for major requirements

token effort to meet requirements

outstanding elementary errors

unusually poor organization

unusually weak development of ideas

negligence in documenting sources

careless disregard for the audience

seriously offending the audience

F. Critical Components of Papers and Presentations

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Grades on assignments are often affected significantly by a single very important

factor. You may produce an assignment that in many regards is, for instance, "B"
work. The final grade on the assignment could be higher or lower because of one
or more outstanding feature. Here are some that often are crucial:

meeting the major requirements of the assignment

definition of the topic (neither too narrow nor too broad)

quality of research and use of supporting materials and evidence

organization

delivery of message

academic integrity

intellectual challenge according to the constraints of the assignment