The Banking and Corporate Finance Training Specialist

Advanced Private Equity &

Leveraged Buy-outs

A comprehensive examination of PE – reviewing the 3 stages from

PE, lender, advisors, management and investor’s perspective

This course is presented in London on:

12-14 November 2018, 11-13 February 2019, 24-26 June 2019, 4-6 November 2019

This course can also be presented in-house for your company

or via live on-line webinar

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+44 (0)20 7387 4484

Course Overview

Participants will: Be introduced to the PE value creation model and PE fund structures Get an overview of the acquisition: adding value and reducing the risk at entry

Have explained to them how to select the right investment with the 5 critical issues to sponsors

Master how to negotiate the deal with the management team Gain an understanding of the key issues for sponsors and management

Learn about the financing options for private equity houses Be appraised of the key issues for senior debt Be taught about how to negotiate the optimum debt package (including lender and

borrower approaches) Have an overview on the different debt instruments – mezzanine, unitranche, second

lien, PIK loans and high yield notes

Day 1 Introduction to Private Equity: The PE value creation model; PE fund structures

Introduction & background

Overview of the PE market Venture capital

PE / leveraged deals The three stages of the deal

Entry, operations & exit The traditional PE value creation model – the 3 key value drivers Techniques for enhancing returns

Capital structure’s impact on value Using soft exits recaps / refinancings

Equity bridges Leveraging the fund

Structuring issues & structuring parameters

Structuring issues Taking security / collateral generally

Security contrasted: UK vs Europe vs USA Financial assistance Ranking & priority of senior vs junior debt & pari passu loan/bond structures

Tax issues - group tax relief & thin cap Squeeze-outs

Spectrum of financing instruments in LBOs - overview Structuring parameters - creating an appropriate financial structure (overview)

Percentage senior, junior and equity in debt capital structure

EBITDA multiples Target returns for Private Equity & mezzanine funds

Deriving the funding structure Funding uses Funding sources

Structure and key terms and trends for Private Equity funds

Course Objectives

Course Content

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Review of typical (Luxco) fund structure Key terms & conditions Investment period (how long)

Preferred return (rate, calculation) Carry (European vs US approach)

How Private Equity fund structures optimise value Hot topics for LPs & GPs

Generating and originating deal flow Why proprietary origination matters Deal sourcing strategies

What makes a good originator What motivates intermediaries

What motivates target’s / sellers How the “right type” of specialisation can boost returns Three ways to use networks

Identifying “exit signals” from various sources Why & how social media matters

Case Study: Calculating the entry and exit value, the funding sources, the basic approach to deriving the equity split between PE and management on entry and

exit and introduction to estimating the correct capital structure

The Acquisition: adding value & reducing risk at entry The acquisition - offer structure

Offer structure – cash free, debt free with normalised working capital/net asset value etc

Risk matrix - analysis of the five key value drivers / areas for due diligence Cash & trapped cash Debt – what’s included?

Working capital (key to the deal?) Capex

EBITDA (the good news & bad) Establishing the run rate

Value matrix – techniques for mitigating the risks and identifying value SPA structuring - Locked box vs Completion accounts

Pros & cons of each

How it can affect value Risk in Locked box

Day 2

Case Study: Identifying problematic items in reconciling equity value to enterprise value and the correct approach to calculating the correct level of

working capital Adding value during the operational stage

Selecting the right investment - the 5 critical issues to sponsors

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Portfolio fit

The business model Management - what PEs approach Approach to generating value/returns

Exits – hard vs. soft How to avoid the value trap

Case Study: Calculate the exit value and discuss how structuring the PE equity can affect the returns of management

Adding value: operating partner models

The new value-creation model – 4 key areas Operational improvements – 6 aspects

7 Methods PE can add value via teaming up with executives The operating partner model (3 approaches) The operating partner model in practice – “typical” role

Liquidity events

Hard exits vs soft exits Exit strategies – using dual or triple track to enhance value IPOs

The key ingredients for IPO What about the management – problem areas

Sale of equity – partial vs complete sale Problem areas – trade vs secondary PE deals

Soft exits – a useful way of enhancing returns

Refinancings & recaps Other ways of extracting value

Management and other fees Case Study: Discuss the pros and cons of a dual/triple track exit strategy and

the key issues to both the PE and management

Negotiating the deal with management team: Key issues for Sponsors

Structuring the equity Structure - loans, preference shares

Typical returns Structuring the payment waterfall

Issues for management

Differences in primary and secondary deals Equity ratchets

Rationale, structure Pros and cons of positive vs. negative, stepped vs. linear

Key issues for Management Multifaceted role and duties of management

Issues vis-à-vis role as director, employee, shareholder, warrantor Key documents & terms

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Shareholders’ agreement vs articles/ statues (pros & cons) Critical issues in the investment agreement

Good vs. bad leaver Management warranties Equity – valuation issues pre exit (why “fair value” is dangerous)

Transfer issues – drag, tag-along rights Critical issues in the service agreement

Restraints Termination

Financing options for PEs

Introduction & overview of the funding spectrum The spectrum of financing options for borrowers Review of typical debt structures in the market for all deals sizes

Senior only Senior/ junior structures

Pari loan bond structures Loans vs Bonds – whats the difference (maintenance vs incurrence covenants)

Senior loans: key facilities & issues “Typical” terms

The main facilities RCFs – why they matter & typical pitfalls Capex facilities

Margin ratchets

Mezzanine key terms

Is there still a market for mezzanine Pros and cons Use an application

Rationale of warranted vs. warrant-less “Typical” terms

Unitranche / direct lending financing Review of the various market structures

“Typical” terms Pros and cons

Use and application – where they work and where they don't Second lien loans

“Typical” terms Pros and cons

Use and application PIK loans (making a comeback)

“Typical” terms Why has the PIK market spring to life

Pros and cons for sponsors

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Use and application Day 3

High Yield Notes

Spectrum of instruments Pros & cons of high yield and why they appeal to borrowers Use and application

Loans vs bonds compared Loans’ maintenance covenants vs Bonds’ Incurrence covenants

Case Study: Reviewing a capital structure and how different instruments can be used to optimise the capital structure, provide more head room and handle

capex

Negotiating the optimum debt package - Lender’s vs Borrowers Negotiating the debt package - The lender’s approach

The Lender’s approach to credit decision measuring debt capacity

security over assets exit routes

Different types of lenders: Banks vs Alternative lenders Whats the difference How and where it matters

Overview of loan documentation and impact on deal Loan as a radar system

Typical structure Key parties (obligors, borrowers and guarantors)

Negotiating the debt package - The borrower’s approach The four deal scenarios and the role of due diligence

The key financial ratios / covenants Cash flow cover Leverage

Interest cover Capex

Selecting the appropriate covenant for the deal; borrowers v lenders Do covenants really matter - if so how, when & where

Step 1: How to identify the borrower’s objective

Step 2: Identifying the key requirements for the borrower Step 3: Deciding on which type of debt & lender is most appropriate

Loans v bonds When and where to use junior debt

Step 4: Strategies for negotiating with lenders

Step 5: Getting what you paid for Inter-creditor issues – review of key issues

Case Study: Calculate the exit value and discuss how structuring the PE equity can affect the returns of management

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The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and restructuring. He is a senior consultant with Debt Xplained, with Grant Thornton UK

(Debt Advisory) and is also a Senior Advisor to KPMG Finland. He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides training to a wide

range of clients on a bespoke in-house basis & publicly through Redcliffe Training Associates. Additionally, he is the Programme Director for the infrastructure/project

finance module for the MBA programme at the Cass Business School in London.

The programme will review the impact of the draft ECB guidance on leveraged transactions.

This programme provides participants with a comprehensive view of private equity, particularly the various types of buy-outs (e.g. LBOs, MBOS). The programme takes

participants through all the major stages of the deal; from entry, through the operational phase to exit (liquidity events). In doing this the course provides insight into how the PE firm can add value to the process at each of the three major stages. To do this it

approaches PE from the respective perspective of all the main protagonists; Private equity professionals, lenders and other providers of debt financing; the various

professional advisers (lawyers, accountants in due diligence or audit), corporate finance advisors and management teams looking to enter or exit the market. It will also appeal to investors who may wish to invest directly (co-invest) or indirectly (via funds) in

different parts of the debt or equity capital structure, such as pension funds, insurance companies, private family offices and corporates who are trying to understand the

radically different business model of their PE competitors

Whilst simple in theory private equity, the highly competitive nature of the PE market

means that adding value can no longer be achieved by leverage and reliance on rising markets. The course covers the three key stages of PE value creation. Stage 1; the

acquisition, where it is vital to structure the transaction in the optimal fashion in terms of both the Offer to minimize risk. Disastrous mistakes can be made ab initio by failing to understand the main risk areas of the equity bridge (i.e. the value traps from enterprise

value to equity value) or in the completion method (e.g. locked box rather than completion accounts). Developing the optimal capital structure is a critical as it is

essential to use both the correct level of debt for and the most appropriate type of debt that will allow the company to achieve its business plan (e.g. organic growth or buy and build).

The second stage requires the PE firm to add value during the operational phase and here

there is much the PE firm can do in terms focusing on operation improvements. These do not occur in a vacuum and require the best management team. Top quartile PE firms

have large in-house teams to assist them in the process but smaller firms can achieve the same results through different “operating partner” models. In the current seller friendly environment, deal origination is another key point of differentiation between top quartile

teams and the course reviews various ways of approaching this issue

The third and final stage relates to liquidity events however PEs have the luxury in the current market of opting for soft as well as hard exits to generate value for LPs.

Background of the Trainer

Course Summary

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The programme adopts a pan-European approach to the topic but the presenter has experience of PE in other jurisdictions including, USA, Asia Pacific and Africa. Reference

will be made to current trends and data in the markets across Europe.

Participants will be provided with numerous case studies to reinforce the various aspects and will also be provided with an LBO model which will be used to structure a transaction.

Post the course participants will receive a number of other PE related models (e.g. how to calculate warrants and ratchets) as well as current review of debt trends in the debt market.

What Redcliffe’s clients are saying about the course and our trainers

“Practical approached combined with a great Trainer”

-- Senior Associate, KPMG

“Case studies and build-up of the models were good” -- Associate Director, Barings

“Highlighting theory as well as practice was good” -- Investment Associate, Bridgepoint

“ Experienced teacher, interesting topics” -- Skandinaviska Enskilda Banken AB

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+44 (0)20 7387 4484

09:30-17:00

London

Standard Price: £1,800 +VAT Membership Price: £1,440 + VAT

In-House Training

Delivering this course in-house for a number of participants could be very cost effective.

The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the

precise contents of the seminar.

Tailored Learning

All of our training courses can be tailored to suit your company’s exact training needs.

We will work closely with you to help develop a training programme with content that is unique for your

organisation.

Please email us on enquiries@redcliffetraining.co.uk for more information

E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact

requirements.