WSO M&a Modeling Course

WSO M&A MODELING COURSE
Module 1: Course Introduction

Course Introduction Lesson 1.1
Welcome!
Instructor Bios Course Background
Zach Mayer • Taught and vetted by actual industry

• Director, Cowen and Company professionals
• PwC Corporate Finance • Each course is beta-tested
• MBA: Northwestern Kellogg
• Course content continuously reviewed
and updated
Levi Malik
• Executive Director, PPD
• Hellman & Friedman Course Objectives
• Morgan Stanley • Learn the finance theory and mechanics
behind Mergers & Acquisitions
Max ⎻ Understand the “why” behind each

• Heads Corporate Development at transaction type and formula
Bonobos • Apply this knowledge by building various
full M&A Models from scratch
3
Why Learn this Material?
• Core of Investment Banking Advisory
⎻Buy-side advisory
⎻Sell-side advisory
⎻Fairness opinions
⎻Focus of many pitchbooks
• Essential modeling skills for a career in investment banking, private

equity/investing, or many corporate development roles
• Understand how modeling fits into the larger picture of a M&A

process
4
Course Prerequisites
• Required
⎻Excel Modeling Course
⎻Financial Statement Modeling Course
• Recommended
⎻Valuation Course
5
Course Overview
• Module 1) Course Introduction • Module 7) Balance Sheet and
Transaction Adjustments
• Module 2) M&A: The Big Picture
• Module 8) Accretion / Dilution
• Module 3) M&A Players and the
Creation of M&A Processes • Module 9) P&L Projections for Full-
blown Accretion/Dilution
• Module 4) Buyside Processes
• Module 10) Sensitivity Analysis
• Module 5) Sellside Processes
Sellside Case: Nike Sells China Unit
Buyside Case: Nike Acquires
Lululemon
Lululemon
• Module 11) Sellside Accretion /
• Module 6) Valuation, Transaction Dilution
Assumptions, and Sources & Uses
6
Module 2: The Big Picture of M&A
M&A: The Big Picture Lesson 2.1
The Who, What, Why, When, and How of M&A
• Buyers are traditionally considered “strategic” (corporations like NIKE) or “financial”

Who? (such as private equity firms, venture capitalists, SPACs, etc)
• Sellers can be publicly-traded or privately-held, large or small
• “M&A” is a commonly used term to cover a range of transactions

What? • Mergers vs. acquisitions vs. divestitures
• Transactions can be structured as a stock sale or asset sale
• The Buyer usually has strategic or financial reasons to want to buy the Seller
• Horizontal (acquire competitors) vs. vertical (in the supply chain) integration
Why? • Gain access to new markets, products, brands, customers, management, etc.
• Realize revenue and/or cost synergies post-acquisition
• The Seller may want to cash out their investment, focus on other activities/investments,
or fall subject to a “hostile takeover”
• Whenever your client says! M&A advisory is a year-round job and can be unpredictable
When? • Private company M&A traditionally takes 6-9 months
• Public-to-public M&A can move much quicker due to confidentiality
How? • M&A is part art, part science – stay tuned!
8
M&A Models
• M&A models are (generally) created by investment bankers to help their clients assess the financial
viability/impact of the contemplated transaction
• These models contain information on the Buyer, Seller, and transaction; models have complex
functionality that allow the user to run various scenarios on the combined projections, synergies,
and transaction funding
• The appropriate scenarios to model are determined after months of detailed due diligence by the
bankers, advisors, and the transaction counterparties
• A key output of an M&A model is the “accretion/dilution” impact of a transaction, or how the
transaction affects a company’s earnings per share
• If a transaction is “accretive” to the Buyer, completing the transaction will increase their earnings
per share (“EPS”)
• If a transaction is “dilutive” to the Buyer, completing it will decrease the EPS of the company
• Companies strive to complete transactions that will increase their shareholder value (the product of
the EPS and P/E multiple); however, dilutive transactions are sometimes completed if the Company
believes the transaction will results in a higher P/E trading multiple (via the market’s perspective of
better growth and profitability prospects due to the transaction)
9
Spotlight on Synergies Revenue Synergy Examples

• An acquirer’s ability to realize financial synergies from their M&A
• Cross-sell new products to existing
transactions can be a key driver of success as a strategic Buyer customers
grows inorganically
• Sell existing products into new
• Revenue synergies are when the combined company is able to channels, customers, geographies
generate more sales than the two companies would have been • Increase product prices by
eliminating the competition
able to do individually
• Cost synergies are when the combined company is able to reduce
costs below what the two companies would have been able to do
individually
Cost Synergy Examples
• In general, cost synergies are easier to identify and realize than
revenue synergies • Consolidate operating footprint
• A key part of the diligence process is identifying synergy • Eliminate redundant positions
opportunities by function and building those savings into the • Increase machinery utilization
financial forecast model • Improve purchasing terms with
greater volumes
• Bankers can assist their clients in modeling out the financial
• Realize operating leverage
impact of potential synergy realization within the valuation and
merger models
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Module 3: M&A Players and
Creation of M&A Process
M&A Players and the Creation of M&A Processes Lesson 3.1
Key Players in M&A Processes

Core players from both Buyer and Seller
• Business/corporate development/strategy – company employees focused leading
strategic organic and non-organic growth activities and other transformative initiatives
• Management & Board of Directors – company leaders who make the ultimate choice
around whether to pursue a transaction
• Shareholders – company owners whose approval is required to complete the transaction
Supporting players
• Investment bankers – advisors helping each transaction party navigate the M&A process
• Accounting, tax, legal, and other advisors – third-party advisors helping clients navigate
their area of expertise through diligence, structuring, integration, and growth planning
• Regulators – government representatives whose approval is required to complete larger
transactions (Hart Scott Rodino) and/or specific-situations (defense M&A, foreign buyers)
12
Investment Bank 101 and Role in M&A Processes

• Investment banks are financial services companies advising companies on financial transactions
• Investment banks exist in all shapes and sizes and range from single-office, single product
boutiques to international, full-service bulge bracket banks offering the full suite of products
• Advises on strategic transactions, including M&A activity, debt and

Investment equity raises, and other strategic alternatives
Banking • Most bankers have industry expertise; smaller shops can be
“generalists”
• These professionals are experts in accessing the “capital markets” to

Capital raise debt or equity financing for operations
Markets • Bankers may be industry-agnostic but have strong knowledge of
their products
• This group helps various asset managers execute financial trades in

Sales & public/private markets
Trading • Responsible for maintaining an active, informed network of
Buyer/Sellers to effectively match trades
13
Types of M&A Engagements

Investment banks are traditionally engaged on three types of M&A-related engagements:
buy-side engagements, sell-side engagements, and the issuance of fairness opinions
Buy-side Engagements Sell-side Engagements Fairness Opinions
• An investment bank is responsible • An investment bank is responsible • Before certain transaction are
for helping their client for helping their client sell to a completed, the Buyer and/or
analyze/acquire an acquisition new Buyer Seller may require a fairness
target • The early-stage work involves opinion from a “qualified advisor
• Advisory scope ranges from broad selecting and contacting the “(i.e. investment bank)
“search-and-screen” to a targeted universe of potential Buyers, • This involves completing a
“rifle shot” approach preparing detailed company detailed valuation analysis to
• The work involves detailed marketing materials (“CIM”) validate that the transaction
diligence on the target company, outlining the investment valuation is “fair” and are used as
analyzing the strategic acquisition opportunity and key investment defense against shareholder
fit, determining appropriate highlights lawsuits
valuation, and analyzing the • The late-stage work involves • These reports are subject to legal
accretive/dilutive impact (for negotiating with Buyers, scrutiny so they need to be
public-company clients) structuring carefully prepared and adequately
• After potential Buyers bid, the sourced
bank will advise the Seller on how • Can be stand-alone or
to proceed complimentary engagements
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Origin of M&A Processes

The origin of M&A processes varies greatly…
• Bankers become trusted advisors by maintaining strong knowledge of their industry and
relationships with key industry players which allows them to source opportunities and
suggest strategic transactions
• In other cases, transactions are planned/initiated by the company, who often engage
their trusted bankers to assist in analyzing and completing the transaction
Deals can develop quickly or be years in the making…
• Bankers may propose transaction ideas for years before a company decides to act
• Significant events within companies, government regulation, industries, or the broader
economy can be the impetus for M&A activity
• Usually, dialogue is friendly between two companies wishing to explore a transaction,
but in certain public-company transactions, negotiations can be “hostile” – a Buyer
makes a public offering to acquire the company without Management’s consent
15
Pitchbooks: The “Storm Before the Calm”

• Before bankers are hired to advise on an engagement, they traditionally are required to
participate in a “bake off”, where several banks “pitch” their services in front of the
client’s key decision makers and compete to win the mandate
• These presentations are usually scheduled on short notice and can be extremely
demanding on junior bankers who rush to prepare the meeting materials (in
comparison, transaction processes can be relatively “slow and steady”)
Pitchbooks…
• …are designed to articulate the bank’s expertise, industry knowledge, proposed
transaction rationale and structure, expected valuation, and other key information to
prove they are best suited to advise on the transaction
• …are prepared using bankers’ industry knowledge and publicly-available information on
the target/Buyers/relevant valuation indicators
• …are easier to create for public companies – for private companies, there will be much
less information available, and insight will be dependent on the banker’s knowledge
16
Module 4: Buyside Process
Buyside Processes Lesson 4.1
Buyside Process Summary

• In a buyside process, your client is the Buyer looking to acquire the target company
• These processes usually develop in one of two ways: Much
more
Buyer Initiating the Outreach Buyer Responding to a Seller common
• This is the more complicated and time-intensive • In this situation, a Seller has contacted the potential
approach, as you need to survey the potential Buyer to alert them that they are entertaining
acquisition landscape and determine who could make acquisition offers
sense to buy and run illustrative analysis on that • Additionally, you know that the Seller is interested in a
combination transaction
• Then, you need approach the target and see if they’re • The flip side is that in these situations there is usually
interested in a M&A discussion – oftentimes they will heavy competition between other potential Buyers the
not engage, so you’ll need to progress onto other targets Seller is likely to have reached out to
• Main risk to banker: significant work with no guarantee • Main risk to banker: your client may not be selected as
of a willing Seller the ultimate acquirer
• The timelines for a buyside process can vary greatly – normally the full process can
take 4 to 8 months; this can vary greatly based on various factors including competing
Bidders, complexity of diligence, and the state of the financing markets
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Stages of a Buyside Process
While the exact timeline and sequencing of events can vary significantly by
transaction, it is helpful to think about buyside processes in 3 stages:
• 1st Stage: Initial Contact and Transaction Assessment (2-3 months)
• 2nd Stage: Detailed Due Diligence (1-3 months)
• 3rd Stage: Agreement on Price/Structure, Approval & Closing (1-2 months)
Further details on the events in each stage and specific roles of various
transaction participants can be found on the following pages
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1st Stage: Initial Contact and Transaction Assessment
Activity Description Key Participants

Identifying • Analyze the competitive landscape • Senior bankers: Suggest specific companies or sub-sectors
• Leverage banker’s industry knowledge and existing that make strong acquisition candidates; manage expectations
potential company relationships to determine potential targets and transaction timeline with the client
targets • Think through potential transaction timeline • Junior bankers: Compile industry research and target
company information to add context to potential target list
• Company: Compliment bankers’ efforts with in-house
knowledge
Preliminary • Run initial, high-level valuation analysis on targets to • Senior bankers: Oversee valuation and forecasting work
determine the financial viability of the acquisition • Junior bankers: Run high-level valuation, “ability-to-pay”, and
valuation • Part of this analysis is an “ability-to-pay”, essentially synergy analysis
and “ability- seeing if the client would reasonably be able to afford the • Company: Support bankers’ efforts on synergy estimate with
target through existing cash and new cash/debt in-house knowledge
to-pay” • Initial synergy assessment
analysis
Contact • Determine target outreach list and approach targets • Senior bankers: Finalize target list and use industry
• Sign NDAs (non-disclosure agreements) allowing for the relationships to conduct outreach; broker initial conversations
candidates, sharing of confidential information between parties and information sharing to aid in the preliminary target
sign NDAs, • Initial request for key information to refine valuation analysis; prepare IOI
assessment (e.g. financials, projections, customer info) • Lawyers: Draft NDA and negotiate required NDA edits
submit IOI • Submit Indication of Interest (IOI) with high-level non- • Company: sign off on IOI
binding transaction proposal details
Based on the replies from the companies on the curated target list, the Buyer will
have a small list of potential targets with whom to move into detailed due diligence
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2nd Stage: Detailed Due Diligence

Conduct • “Due diligence” is all work associated with learning more • Senior bankers: Guide information requests for business and
about the target and potential combined entity financial diligence, lead business/financial diligence meetings
detailed due • Submit information requests to the target and receive • Junior bankers: Run analysis related to business/financial
diligence responses in a “data room”, which houses a constantly diligence, create detailed M&A model, track outstanding
growing set of various files related to the potential business/financial diligence items
transaction • Lawyers: Lead all aspects of legal diligence
• Tax advisors/accountants: Run all aspects of tax/financial
Diligence takes many forms: diligence
• Business due diligence: learning more about the target • Company: Support all forms of diligence, various members of
company and industry, site visits, management meetings each team will work with the advisors on each type of
• Financial due diligence: detailed review of target diligence, participate in management meetings with target,
financials, bottoms-up synergy assessment, creation of coordinate early stages of integration planning
projections
• Legal diligence: ensuring no legal issues with the target,
think through anti-trust implications of the transaction
• Tax diligence: understand tax implications on the
combined company
Detailed • After appropriately progressing diligence, complete • Senior bankers: Guide final valuation assessment and
detailed valuation to determine appropriate valuation coordinate outstanding diligence questions
valuation (could be a tight range) • Junior bankers: Run detailed valuation and assist in drafting
and • Submit a “LOI” (letter of intent) with the proposed price of LOI
and final diligence questions that need to be answered • Company: Seek internal approval for valuation range and LOI
submitting before the transaction can be completed terms; provide input on remaining diligence streams and timing
LOI to close
The timing of this phase depends on how detailed Buyer diligence becomes, and
how quickly the Seller responds to diligence requests
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3rd Stage: Agreement on Price and Transaction Closing

Finalize due • Work with potential Seller to get answers to all • Senior bankers: Interface between Buyer and Seller on final
outstanding due diligence required to get comfort with diligence points, instruct final valuation
diligence submitting a binding bid • Junior bankers: Run final valuation analysis
• Arrive at final valuation assessment for the target • Company: Grant approval on final purchase price offering, and
coordinate post-merger integration plans
Prepare • Prepare definitive agreement that outlines the terms • Senior bankers: Help guide commercial details of definitive
(including valuation) of the proposed acquisition of the agreement
definitive target • Lawyers: Draft and negotiate the definitive legal agreements
agreement • Send this binding document to the Seller for their review • Company: Give directive to advisors throughout negotiations
and mark-up and ensure internal approvals are coordinated
Secure • If needed, secure debt and/or equity funding to finance • Capital markets team: lead outreach and securing of
the transaction financing
financing • Senior bankers: Market company/investment opportunity to
potential financing sources
• Company: final approval on proposed financing terms and
selection of financing partner
Shareholder • Prepare and submit all necessary SEC filings • Senior bankers: Interface between client and junior bankers
• Gain shareholder approval for the transaction and oversee fairness opinion work
& regulatory • Gain regulatory approval – no violation of anti-trust or • Junior bankers: Support fairness opinion workstreams
approvals other regulatory concerns • Lawyers: Coordinate all approvals and regulatory submissions
• Get a fairness opinion if needed (especially if a public • Company: Communicate with shareholders around
company is involved) transaction approval, announce and close transaction, initiate
• Sign and close the transaction post-merger integration plans
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The Deal is Closed - Congratulations!
23
Module 5: Sellside Process
Sellside Processes Lesson 5.1
Sellside Process Summary

• In a sell-side process, your client is the potential Seller
• Similar to buy-sides, these processes can be bucketed into two main forms: where the
Seller is doing the outreach vs. where the Seller is replying to a proposal from a Buyer
Much
more
common Seller Initiating the Outreach Seller Responding to a Buyer
• This is the more common engagement • In this situation, a Seller would engage an
• The Seller will engage the investment bank early on, investment bank to help them evaluate interest from
so that they can help create a potential Buyer list a Buyer
and organize materials that will eventually be sent to • While less common, these require immediate
potential Buyers attention and organization from the bank
• These transactions have good odds of happening, • The Seller could accept the bid, negotiate with the
since the company is interested in selling and just Buyer, reject the bid, or choose to enter a wider sale
needs one Buyer who will meet what they believe is process to ensure they are maximizing their
an acceptable price potential price
• In general, sell-side processes take longer than buy-side process giving the significant
upfront work required to prepare a company for sale – normally the full process can
take 6 to 12 months from engagement to completed transaction
25
Stages of a Sellside Process
While the exact timeline and sequencing of events can vary significantly by
transaction, it is helpful to think about sellside processes in 4 stages:
• 1st Stage: Assessment and Process Set Up (2-3 months)
• 2nd Stage: Initial Buyer Contact and Gauging Interest (1-2 months)
• 3rd Stage: Buyer Meetings and Diligence (1-3 months)
• 4th Stage: Agreement on Price and Transaction Closing (1-2 months)
Note that the above timeline aligns with the more commonly-seen “Seller
outreach” scenario. When a potential Buyer initiates the outreach, discussions
normally advance to the 3rd stage
More details on the events of each stage and specific roles of various
transaction participants can be found on the following pages
26
1st Stage: Assessment and Process Set Up

Determine • Review competitive landscape and industry players • Senior bankers: Think through potential Buyers given industry
• Consider Buyer synergy estimates knowledge, guide synergy analysis, set timing expectations
Buyer list • Arrive at initial Buyer outreach list with company
and timeline • Determine rough process timetable • Junior bankers: Competitive intelligence work to provide more
context on potential Buyer list, run Buyer synergy analysis
• Company: Final approval on potential Buyer list
Create • A “teaser” is a short (1-2 pages or slides) document with • Senior bankers: Oversight and guidance on teaser prep
summary information on a potential acquisition target • Junior bankers: Create and revise the teaser
company • This is the first material shared with potential Buyers to • Company: Review and give final sign-off on teaser
teaser gauge their initial interest without revealing too much
information
• A potential Buyer will use the teaser and their in-house
knowledge to determine if they want to move forward
Create • A Confidential Information Memorandum (“CIM”, also • Senior bankers: Oversight and guidance on CIM prep, which
known as an Offering Memorandum or “OM”) is a more is much more substantial than teaser prep
company detailed document with 50-100 pages or slides • Junior bankers: Creation and numerous edits of the
“CIM” • This is the first and most important document a Buyer will document over a 1-2 month period
review after signing an NDA • Company: Provide raw information used by bankers to draft
• It contains detailed investment highlights, information on the CIM; provide input and comments throughout the drafting
the industry, summary of business and segments, process
historical and projected financials and management
27
2nd Stage: Initial Buyer Contact and Gauging Interest

Contact • Send out the teasers and CIMs to the proposed Buyer list • Senior bankers: Conduct actual outreach
• As mentioned, NDAs (non-disclosure agreements) allow • Lawyers: Draft NDA and negotiate required NDA edits across
candidates for sharing of confidential information between parties potential Buyers
with teaser • Teasers are usually also sent with NDA to help determine
potential Buyers if they may be interested
and sign
NDAs
Send out the • Buyers in the process are narrowed to only those who • Senior bankers: Send out the CIM, determine what other
sign a NDA and receive a CIM information may be provided at this phase
CIM to • Oftentimes, Sellers will respond to some initial questions • Junior bankers: Help answer Buyer requests, as allowed
interested on the CIM, but frequently they won’t spend significant • Company: Help answer Buyer requests, as allowed
time with potential Buyers until later in the process
parties
Begin • A “data room” is a virtual DropBox-style location where • Senior bankers: Guide what will documents to begin
the Seller will upload all of the relevant documents to help preparing for the data room
preparing the Buyer through their diligence • Junior bankers: Work on preparing some of the data room
data room • Later in a process, the files in the data room will be in documents, organize the dataroom (properly categorized
direct response to questions from potential Buyers – folders, etc.)
however, there are some standard documents Sellers • Lawyers: Help with legal documents for data room
know they will need to upload around customers, facilities, • Tax advisors: Help with tax documents for data room
employees, etc. • Company: Help provide documents and supporting
• Sellers will begin to populate the data room before information for the data room
opening it to Buyers to expedite the diligence process
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3rd Stage: Buyer Meetings and Diligence

Open data • Open up an initial dataroom with key company info • Senior bankers: Lead interaction with the potential Buyers
• Continue to add files as they are ready to support all and determine the contents and pacing of the dataroom
room and types of Buyer diligence (business, financial, legal, tax, • Junior bankers: Run dataroom and tracker, work with
support etc.) company to create files and add them to the dataroom
• Buyers will get opportunities to submit requests, and • Lawyers: Help with legal diligence
Buyer due Seller will manage a tracker showing what questions are • Tax advisors/accountants: Help with tax diligence
diligence addressed (and where they are located in the dataroom) • Company: Support all forms of diligence, various members of
vs. those the company cannot or will not answer each team will work with the advisors on each type of diligence
• As the Seller, you want to add information progressively
since you don’t want to share extra information with
competitors until there is more certainly about a potential
transaction
Management • Various meetings between the management teams of the • Senior bankers: Lead interaction with the potential Buyers
Seller and each potential Buyer and guide the company on how to best handle the meetings,
Meetings • Other meetings with certain functions of the Seller and also attend meetings
with Buyers site visits also as needed • Junior bankers: Sometimes attend meetings to ensure follow-
• These can be time intensive, so need to ensure the Buyer ups are handled; prepare any supplementary presentations
list is down to the top few prospects by this time • Company: Lead responses to Buyer questions in various
meetings
Receive • After potential Buyers have enough information to submit • Senior bankers: Manage the timeline for LOI and check-in
a near-final bid, set a date to receive LOIs bids
LOIs • Depending on how the process unfolds, there is • Junior bankers: Analyze LOIs and summarize for clients
sometimes a request for a “check in” bid to further narrow • Lawyers: Assist in negotiating the LOI
the Buyer pool following management meetings • Company: Provide input on price expectations and guidance
• Receive LOIs with the Buyers’ proposed prices and final on which Buyers should remain in the process
key diligence questions outstanding from each
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4th Stage: Agreement on Price and Transaction Closing

Help Buyers • Work with potential Buyers to answer all outstanding due • Senior bankers: Interface between Buyer and Seller on final
diligence required to get comfort with submitting a binding diligence points, instruct final valuation
finalize due bid • Junior bankers: Help provide information for and track final
diligence • Can also include any final meetings or phone calls with diligence questions
Seller management as needed • Company: work with bankers to answer final questions
Request final • Issue a process letter to Bidders requesting exactly what • Senior bankers: Help guide details of definitive agreement
details are expected in the final binding bids • Junior bankers: Run analysis to contextualize value in binding
binding bids / • Select final Bidder bids
definitive • Ensure Bidder has secured transaction financing • Lawyers: Negotiate the definitive agreements if needed
• Company: Coordinate internal approvals and selection of
agreements preferred Bidder
Get • Prepare and submit all necessary SEC filings • Senior bankers: Lead fairness opinion
• Gain shareholder approval for the transaction • Junior bankers: Support fairness opinion
shareholder • Gain regulatory approval – no violation of anti-trust or • Lawyers: Coordinate all approvals and regulatory submissions
& regulatory other regulatory concerns • Company: Communicate with shareholders around
• Get a fairness opinion if needed (especially if a public transaction approval, announce and close transaction
approvals company is involved)
• Close the transaction
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The Deal is Closed - Congratulations!
31
Buyside Case: Nike Acquires Lululemon
32
Module 6: Introduction to
M&A Excel Section
Instructor Transition, Housekeeping, & Model Overview
Lesson 6.1: Introduction to M&A Excel
Section
Introduction to M&A Excel Section Lesson 6.1
Welcome to Excel!
Instructor Bios Fun Facts
Turner DeMuth
• Private Equity Associate, Serent • Former High School Physics in
Capital Chicago
• Former Credit Suisse Technology • Education and EdTech Enthusiast
Investment Banking Coverage
• B.A. in Economics & Psychology • Favorite fruit: Banana
from Columbia University
Max • Co-advised Goldman Sachs on

• Chief Financial Officer at Chiquita’s acquisition of Fyffes to make
Bonobos the world’s largest banana
• Former Heads Corporate conglomerate
Development
• Claims to have built a full three
statement M&A model from scratch in
under a half hour
35
Housekeeping: Prerequisite WSO Courses
🍌Required
Don’t forget to
○ Excel Modeling Course do your pre-
work so that we
○ Financial Statement Modeling Course can jump right
to the fun stuff!
○ Valuation Course
🍌Recommended
○ LBO Course
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Housekeeping: Module & Lesson Flow
🍌Module formats
○ Overview lesson - preview what we will accomplish in the module
○ Core concept lessons - teach concepts & build the excel model
○ Review lesson - recap what we just learned & how it connects
🍌Core concept lesson format

○ Introduction - preview section of model we will complete in this lesson
○ Financial concepts - cover concepts we will run into in excel
○ Excel preview - preview shortcuts, functions, and formulas we use in excel
○ Build the model - we’ll hop into excel and build this section of the model
37
Lesson 6.2: Situation Overview
The Mission
“Strategic Alternatives”
1 + = EPS?
2 - = EPS?
39
Wait, but why?
WHY approach an WHY merge with WHY sell the China

Investment bank? Lululemon? Business Unit?
🍌 Industry experience 🍌 Exposure to higher 🍌 Unit is non-core to

growth apparel larger company
🍌 Pulse on market
🍌 Valuable brand 🍌 Dis-synergies to the
🍌 Access to
resources business unit
🍌 Expand globally
🍌 Relationships & 🍌 There is anti-trust
connections 🍌 Access to
pressure to divest
Lululemon’s
🍌 Analysts to pile engineers and
🍌 The stand-alone
work on design team
valuation is higher
🍌 Cost synergies
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Lesson 6.3: M&A Model Overview
Setting the Stage: What is this M&A model you speak of?
🍌An M&A or “merger model” is an analysis representing the combination of two companies
🍌The goal of this model is to look at one projected metric after acquisition: Earnings per Share (EPS)
○ If the EPS goes up after the deal, then the acquisition is said to have been “Accretive”
○ If the EPS does down after the deal, then the acquisition is said to have been “Dilutive”
○ We call this part of the model the Accretion / Dilution Analysis
○ Since it takes time for synergies to manifest (more on this later) it is important to look at EPS not
just for the year immediately after the acquisition but instead for multiple years into the future
🍌In our two examples, our analysis will be concentrated on whether Nike buying Lululemon and Nike
selling its China business Unit will be accretive to EPS
42
Setting the Stage: What’s Included in an M&A Model?

🍌Merger Model Specific Setup ○ Debt Schedule
○ Target Share Dilution & Purchase Price ○ Credit Metrics
○ Key Assumptions ○ Interest Schedule

○ Sources & Uses ○ Tax Schedule
○ Financing Assumptions 🍌Accretion / Dilution Analysis
🍌Combined Three Statement Model ○ Shares Outstanding
○ Balance Sheet ○ Accretion / Dilution Analysis
○ Income Statement (or “P&L”) ○ Breakeven Analysis
○ Working Capital Schedule ○ Sensitivity Tables
○ Cash Flow Statement
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How we gon’ get there?
🍌Module 6: Intro to M&A Section

○ Almost done…I promise...
🍌Module 7: Model Setup for Nike Acquires Lululemon
○ Assumptions, Sources & Uses, & Purchase Price Accounting
○ Same setup for both the simplified and detailed model
🍌Module 8: Nike Acquires Lululemon - Simplified Analysis
○ Balance Sheet Adjustments & Accretion / Dilution Analysis
○ Question: Is this deal even worth a detailed analysis?
🍌Module 9: Nike Acquires Lululemon - Detailed Analysis
○ Combined Three Statement Model & Accretion / Dilution Analysis
○ Question: Is this deal accretive to EPS?
🍌Module 10: Nike Sells China Business Unit - Detailed Analysis
○ Pro Forma Three Statement Model & Accretion / Dilution Analysis
○ Question: Is this deal accretive to EPS?
44
Excel Shortcut Preview
🍌Excel shortcuts for 6.3

○ Move to the excel tab to the right = Control + Page Up
○ Move to the excel tab to the left = Control + Page Down
○ Jump from one filled cell to next = Control + Up/Down/Left/Right Arrow
🍌Be sure to download the excel file
45
Module 7: Nike Acquires
Lululemon - Model Setup
Assumptions, Sources & Uses, & Purchase Price Accounting
Lesson 7.1: Module 7 Overview
Nike Acquires Lululemon - Model Setup Lesson 7.1
Module 7 Overview
Module 7 Excel Output
🍌Lesson 7.2 - Building to Target Purchase

Price
🍌Lesson 7.3 - Key Transaction Assumptions
🍌Lesson 7.4 - Financing Assumptions & Fees
🍌Lesson 7.5 - Sources & Uses of Cash
🍌Lesson 7.6 - Asset Write Ups & Purchase

Price Allocation
🍌Lesson 7.7 - Module 7 Review & Summary

48
Lesson 7.2: Building to Target Purchase
Price
Lesson 7.2: Building to Target Purchase Price

Lesson 7.2 Excel Output
🍌 What is our key objective for Lesson 7.2?
○ Calculate price Nike will pay for Lululemon
🍌 Why does it matter?
○ To understand accretive/dilutive impact of

buying Lulu, we calculate how much Nike must pay
🍌 Key terms to understand...

🍌 Target Share Dilution & Fully Diluted 🍌Offer Premium
Shares Outstanding (FDSO) 🍌Equity Value / Offer Equity Value
🍌 Stock Options & Treasury Stock Method
🍌Enterprise Value / Offer Enterprise Value
(TSM)
🍌Calendarization
🍌 Restricted & Performance Stock Units
(RSUs & PSUs) 🍌Valuation Multiples
50
Target Share Dilution & Fully Diluted Shares Outstanding

🍌Target Share Dilution calculates the impact of dilutive
securities and helps find the Fully Diluted Shares
Outstanding (FDSO) Woahhh there
cowboys &
🍌Dilutive securities included in FDSO:
cowgirls, we need
○ Stock Options
take it slow and
○ Restricted Stock Units (RSUs) define some terms
○ Performance Stock Units (PSUs) before we can jump
🍌To calculate the Purchase Price of the target company, into excel
which our goal in this lesson, we must first calculate the
FDSO
○ FDSO is used to calculate Offer Equity Value
🍌Calculating FDSO is simple:
○ FDSO = Dilution from Options, RSUs, PSUs,
Convertible Securities + Shares Outstanding
51
Stock Options & Treasury Stock Method (TSM)

TSM Example
🍌Stock Options are granted by companies to employees and give
1. Identify # of options In-The-Money
employees the right to buy company stock at a specified price
Current share price: $10.00
○ This specified price is the Exercise Price (AKA Strike Price)
Exercise price # of options
○ The # of Options and their Exercise Prices are found in the 10-K
Options A $5.00 100
🍌If Strike Price < Share Price, then the option is “In-The-Money”
Options B $15.00 100
○ It would make sense for an employee to buy at the Strike Price
and resell at the current Share price for a profit 2. Calculate proceeds to company
🍌If Strike Price > Share Price, then it is “Out-Of-The-Money” Exercise price = $5.00
# of options = 100
🍌The Treasury Stock Method (TSM) is used to calculate the Proceeds = exercise price * options
Proceeds = $5 *100 = $500
number of new shares that created by In-The-Money Options
○ The method assumes that all In-The-Money Options will be 3. Calculate # of shares repurchased
exercised (creating more common shares shares) Shares repurchased = proceeds /

current share price
○ But proceeds from these purchases will go to the company and SR = $500 / $10 = 50
the company will use them to buyback shares to limit dilution 4. Calculate Dilution from Options
🍌Excel formula: # of options In-The-Money - [(exercise price * # Dilution = # of In-The-Money Options - #

of options In-The-Money) / current share price] of shares repurchased
Dilution = 100 - 50 = 50
52
Restricted & Performance Stock Units (RSUs & PSUs)

🍌Restricted Stock Units (RSUs) are stock units given by a
company to its employees as compensation that vest once Yikes my head
employees have been employed for a certain amount of time hurts from the
○ There is NO Exercise Price or Strike Price - these units are
Treasury Stock
given to the employees and don’t need to be bought Method...that was a
lot of numbers!
○ The # of RSUs are found in the 10-K
Thankfully, RSUs &
🍌Performance Stock Units (PSUs) are stock units given by a PSUs are much
company to its employees as compensation that vest after simpler
achieving required performance milestones
○ There is NO Exercise Price or Strike Price either
○ The # of RSUs are found in the 10-K as well
🍌For both of these, it is assumed they are both fully vest if a
company is purchased
○ There is no calculation needed here - simply grab the RSUs &
PSUs from filings and type into excel
53
Offer Premium Lesson 7.2 Excel Output
🍌 Offer Premium is the difference between the current stock price and the
price an acquirer offers to pay shareholders for their shares of stock
○ This premium is added to incentivize shareholder to sell their shares
○ There is no requirement to pay a premium and premium amounts vary
greatly, though 25-35% premiums are typical
○ Depending on the situation, there could even be a discount
🍌Calculating a premium is easy: simply decide on a % premium, add 1 to
that %, and multiply the share price by that number
🍌For public companies:Multiples based on premiums are compared to
precedents and trading comps to justify the proposed valuation
🍌For private companies: there is no publicly traded stock, so multiples are
used to calculate purchase price
Amazon-Whole Foods Example
1. 2. 3. Amazon to acquire Whole Foods for $42 a share, in a
deal valued at $13.7 billion. Amazon’s offer
Decide on a premium Calculate the multiplier Multiply by share price
represents a 27 percent premium to Whole Foods’
closing price of $33.07 on Thursday. With Whole
27% 1 + 27% = 1.27 $33.07 * 1.27 Foods shares trading around Amazon’s offer price,
investors appear to be speculating that another suitor
= ~$42.00 could make a play for the grocery chain.
Source: CNBC News. 54

Learn more about Public Companies trading above the price offered by an acquirer here:
https://www.cnbc.com/2017/06/16/whole-foods-shares-rise-above-amazon-offer-price-on-speculation-of-bidding-war.html
Check out the WSO

Valuation Modeling
Equity Value & Offer Equity Value Course for more on
this concept!
Equity Value is the value of a company's common shares at current share price
Definition
Offer Equity Value uses the offer share price (w/ premium) instead of current price
Deep Dive How its Calculated Also Known As… What It’s Not
🍌Price per share x 🍌Often referred to as 🍌Does NOT represent

common shares “Market the value of the Firm
outstanding Capitalization” or and its core operations,
“Market Cap” which also includes the
🍌Shares calculated on a
value of other investor
“fully diluted” basis 🍌Can be thought of as
capital (i.e. from debt
(options, RSUs, PSUs, the market value of the
investors, etc.)
etc. convert) shareholders’ total
🍌This will be
invested capital
🍌Net of outstanding represented by
debt or other Enterprise Value
obligations
Equity Value = Price per Share * Fully Diluted Shares Outstanding (1)
1. Fully Diluted Shares Outstanding = Basic Shares Outstanding + Shares from In-the-Money Stock Options & Warrants +
55
Shares from other In-the-Money Convertible or Dilutive Securities (i.e. Restricted Stock, etc.)
Check out the WSO

Valuation Modeling
Enterprise Value & Offer Enterprise Value Course for more on
this concept!
Enterprise Value reflects the value of a company’s core assets funded by (and
Definition attributable to) BOTH the company’s debt and equity value
Offer Enterprise Value is equivalent, but uses Offer Equity Value
Deep Dive
How its Calculated Also Known As… What It’s Not
Value of all ownership Can be thought of as the EXCLUDES non-core

interests and claims on value of the company’s assets, for example,
core business assets operational assets, in excess cash (or cash not
(from both debt and addition to its future required for operational
equity investors) growth opportunities needs)
Enterprise Value (“EV”) = Equity Value + Total Debt + Value of Preferred Stock (1)+ Value of
Non-Controlling Interests(1) - Excess Cash and Non-core Assets(1)
1. If applicable; most companies have some combination of debt and common equity funding, but not necessarily. Preferred
56
stock and non-controlling interests are less frequently seen in public company capital structures, but they are still prevalent.
Check out the WSO

Valuation Modeling
Calendarization Course for more on
this concept!
Calendarization is the process of standardizing the reporting time periods so that metrics (such as
Sales and EBITDA) are comparable across companies
Next Calendar Year (“CY”) Sales =

[Actual Fiscal Year Sales * Month # in which Fiscal Year ends / 12] +
[Next Fiscal Year Projected Sales * (12 – Month # in which FYE) / 12]
⎻ For example, if Max’s Bananas Fiscal Year 2020 (“FY20”) Revenue (for the 12 months ending 5/31/2020)
is projected to be ~$42 billion, compared to Max’s Bananas FY19 Revenue of ~$39 billion, we would
calendarize Max’s Bananas revenue for the calendar 12 months ending 12/31/2019 as follows:
CY2019 Revenue = [39 billion * 5 / 12] + [42 billion * 7 / 12] = ~$40.75 billion
FYE 5/31/2019 FYE 5/31/2020

FY19A
* (5/12) $42B
FY20E * $39B
(7/12)
CY2019
57
$40.75B
Trading Comps Introduction Lesson 7.2
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Valuation Modeling
Valuation Multiples Course for more on
this concept!
Definition
Multiples – use a value metric in the numerator and a financial or operational metric in
the denominator. Reflects current valuation on a per unit basis based on market conditions
Enterprise Value Multiples Equity Value Multiples
EV / Revenue P/E
Equity Value divided by Net Income, OR
Enterprise Value divided by Revenue (Price per Share divided by EPS)
EV / EBITDA PEG
P / E ratio divided by Projected Long-term EPS
Enterprise Value divided by EBITDA Growth Rate
EV / EBIT P/B
Enterprise Value divided by EBIT Equity Value divided by Book Value of Equity
58
7.2 Excel Preview Column J Formulas
End goal: Calculate Purchase Price of Lululemon

🍌To do this, use knowledge of Stock Options &
RSUs to calculate FDSO
🍌Then use knowledge of Offer Premiums & Offer
Equity Value to find Lulu’s Purchase Price
🍌Finally, use what we learned about Calendarization
to calculate Offer Multiples
Shortcuts Formulas
🍌Alt + + = automatically create a formula to sum 🍌Calculating options = # of options In- LAST SLIDE
all the numbers in a continuous range The-Money - [(exercise price * # of UNTIL EXCEL
options In-The-Money) / current share

Functions & Formats price]
🍌If Function = IF (logical_test, [value_if_true], 🍌Calendarization = [Actual Fiscal Year
[value_if_false]) * Month # in which Fiscal Year ends /
12] + [Next Fiscal Year Projected * (12
– Month # in which FYE) / 12]
59
Lesson 7.3: Key Transaction Assumptions
Lesson 7.3: Key Transaction Assumptions

🍌 What is our key objective?
○ Fill in and understand key assumptions for our transaction
🍌 Where do assumptions come from?
○ Past experience, market environment, and details
specific to the acquirer and target’s financials
○ The transaction analysis hinges upon these assumption
assumptions as they heavily influence the resulting EPS
🍌 Cash / Stock Considerations 🍌Minimum cash balance
🍌 Stock v. Asset Sale 🍌Transaction Fees
🍌 Maximum Leverage
61
Cash/stock considerations v.
🍌Most important assumption: how the buyer funds the transaction between cash/debt and stock
🍌The split has large implications on the accretion/dilution since adding more shares is inherently dilutive
○ This dilution may be offset by the added earnings from the target (what we are trying to figure out)
○ In general, less new stock issued, the lower the chance the transaction is dilutive
Earnings 100 100

Dilution + 40
illustration = EPS = = = 10 = = 2
Shares 10 shares 50
Cash Purchase Stock Purchase

🍌Consists of issuing equity or new shares of stock
🍌Consists of either existing excess cash on
🍌An exchange ratio represents the # of acquirer shares
balance sheets (less likely) or cash raised
that will be issued in exchange for target shares
through issuing new debt (more likely) 🍌Since share prices can change between the signing and
🍌While issuing debt is generally more accretive, closing, deals can be structure in two ways
a buyer must adhere to appropriate pro-forma ○ Fixed ratio - unchanged between signing and closing
leverage levels (more here shortly) ○ Floating ratio - ratio changes such that acquirer gets a
fixed value regardless of shares
62
Stock v. Asset sale

🍌 Relates mainly to tax statements (boring, I know…) as opposed to financial statements
🍌 “Carrying value of assets for tax purposes” depends on transaction’s legal structure
🍌 Throughout a deal, you’ll work with tax advisors to ensure correct tax treatment
🍌 There are two possible legal structures in an M&A:
Stock Sale Asset Sale

🍌 Purchase of individual assets and liabilities
🍌 Purchase of the owner’s shares of a corporation
🍌 Seller retains possession of the legal entity and the buyer
🍌 There isn’t a step-up or change to the tax basis of the purchases individual assets (i.e. equipment, goodwill, trade
assets on tax statements secrets etc.)
🍌 This allows buyers to “step-up” the depreciable basis on
🍌 From a tax perspective, no new valuation has taken tax statements to their Fair Market Value
place that would call for an adjustment to the assets
🍌 By allocating a higher value for assets, depreciation
🍌 Stock sales can have a huge deviation in the value of increases, which means taxable earnings decrease (think
the assets between book and tax EBITDA - D&A), which means taxes decrease, however,
cash flow is unchanged since D&A is a non-cash expense
Generally, buyers prefer asset sales, whereas sellers prefer stock sales. The actual assets and liabilities
acquired in either transaction tend to be similar, so the only difference is tax treatment.
63
Check out the WSO

LBO Modeling
Maximum Leverage & Leverage Ratio Course for more on
this concept!
Leverage Ratio: US Large Corporate LBOS

🍌What is leverage?
⎻ Simple - it’s debt!
🍌How is it measured? What is a leverage ratio?
⎻ Either Debt-to-EBITDA or Net Debt-to-EBITDA
⎻ Ratio of Debt to Cash Flow
🍌What is max leverage?
⎻ The highest Debt-to-EBITDA ratio lenders are
willing to lend at
⎻ Generally, max is 6-7x EBITDA but will vary
based on market conditions and company factors Source: LCD, an offering of S&P Global Market Intelligence
⎻ There is no law for max leverage, but instead it Share of US leveraged buyout market, by leverage level
depends on what lenders are willing to lend

⎻ Consult debt comps for a fair max leverage
assumption
🍌Remember, while issuing debt is generally more
accretive, a buyer must be comfortable operating a
higher levered pro-forma company (which may add
risk)
Source: Global Private Equity Report 2020 – Bain & Company
64
Minimum Cash Balance & Transaction Fees

Min Cash Transaction Fees
🍌Minimum cash needed to run the business 🍌Just like there are transaction fees for using your
credit card, the same is true for M&A processes
○ This is how much cash you leave on the
company’s balance sheet at closing 🍌With a credit card, your fee goes to the credit card
company doing the work to enable the transaction
○ Let’s not forget - even while an M&A transaction is
happening, businesses continue operating 🍌In an M&A process, you also pay companies that
doing the work to enable your transaction, including
🍌To know how much cash the company needs to
operate, need to know business and industry well ○ Lawyers (Legal Fees)
○ Accountants (Accounting Fees)
○ High working capital businesses (i.e. airplane
manufacturer) may have a high min cash whereas ○ Third Party Consultants (Consulting Fees)
a software company may have much lower
○ Investment Banks (M&A Fees) → this is how M&A
🍌A general rule is to either ~2 months of SG&A bankers make their money!
expense or 4% of annual revenue, which we will use
🍌Transaction fees are typically 1-2% of enterprise
○ Senior industry coverage bankers will usually give value, though for larger deals (like Nike buying
an assumption if they know the business well Lululemon) they will cap out
65
7.3 Excel Preview

Column C Formulas
End goal: Fill in our transaction assumptions

🍌Fill in our Cash / Stock considerations
○ Assume 50/50 for illustrative purposes
🍌Fill in our tax structure
○ Assume our tax advisors recommended a stock sale
🍌Fill in our max leverage
○ Assume Nike is willing to go up to 6.0x and that lenders
will lend that much if needed
🍌Fill in minimum cash balance
○ Assume ~4% of SG&A, which comes out to ~$2B
🍌Fill in pro forma tax rate
○ Assume our tax advisors recommended 27%
🍌Transaction fees
○ Assume this is capped at $100mm
Shortcuts Formulas Functions & Formats
🍌 NONE :) 🍌 NONE :) 🍌 NONE :)
66
Lesson 7.4: Financing Assumptions & Fees
Lesson 7.4: Financing Assumptions & Fees

🍌 What is our key objective? Key terms to understand…
○ Fill in and understand key financing assumptions 🍌 Sources & Uses
& calculate resulting financing fees & OID
🍌Financing concepts
🍌 Where do assumptions come from?
○ Types of interest
○ Current debt market environment!
○ Original Issue Discount (OID)
🍌 Why does it matter? ○ Tenor
○ Fees & OID will flow into Uses of Cash (more on ○ Fee
○ London Interbank Offered Rate (LIBOR)
this shortly) and interest is subtracted from earnings
🍌 Types of Debt
○ Higher interest rate = higher interest = lower
earnings = lower EPS = more likely to be dilutive ○ Revolver
○ New Term Loan
68
Sources & Uses

🍌Just as they sound - the sources of cash are where the money for the transaction will come from
and the uses of cash is where that money will be used
Sources Uses
🍌Excess Cash (Cash on Balance Sheet - Minimum
🍌Equity Purchase Price (buying the company) Cash)
🍌Refinanced Debt ○ Some will list Balance Sheet Cash as a Source

🍌Transaction Fees (Legal, Accounting, Consultants, and Minimum Cash as a Use - impact is same
Bankers) 🍌Debt (typically newly issued)
🍌Financing Fees (Underwriting Fees, OIDs) 🍌Equity (newly issued stock)
69
Check out the WSO

LBO Modeling
Key Terms: Interest, OID, Tenor, Fee, LIBOR Course for more on
this concept!
• All of these are just different names given to the annual interest on a debt instrument
• They can be grouped into Fixed or Floating:
Fixed interest rate: means the interest expense to be paid is the same in each year, regardless of changes to the
Coupon/ lending environment
Spread/ Floating interest rate: is typically tied to LIBOR plus a specified spread (e.g. LIBOR + 400 bps)
Dividend
• With floating rate interest, typically an interest floor of 1% is set
• If interest rates are expected to fall, investors prefer fixed rates. If they are expected to increase, investors prefer floating
rates
• An original issue discount (OID) is when companies sell debt at a discount to their face value. Bonds are sometimes sold
Original Issue for a price that is less than its stated value at maturity
Discount (OID)
• This is used to incentivize the lender to take the risk to be part of the transaction
• Refers to underwriting fee - similar to M&A fee, this fee is paid the investment banks that underwrite the debt financing
Fees
• Tends to be ~1% of the transaction, though can fluctuate based on various factors
• “LIBOR” stands for the London Interbank Offered Rate, which is the interest rate at which banks can borrow money
unsecured from each other for a period of time. It is the standard benchmark rate upon which most floating-rate loans
LIBOR are priced
• Note: Due to LIBOR rigging scandals, and other controversies around the metric, some institutions are moving over to
using SOFR (the Secured Overnight Financing Rate, published by the Federal Reserve Bank of New York)
Tenor • Tenor / Maturity is the lifespan of the loan

(Maturity) (i.e. the number of years the obligation is outstanding until full principal repayment is due)
70
Check out the WSO

LBO Modeling
Revolver Course for more on
this concept!
• A revolver is usually a line of credit offered by a bank that allows a company to draw down, repay,
and reborrow on an as-needed basis (like a credit card)
• Typically used by companies to meet short-term working capital obligations
• Drawn when available free cash flow is insufficient to fund daily operations
• Tenor: Typically 3 - 5 years
• Security: Secured 1st or 2nd Lien
• Covenants: Maintenance + Incurrence
• Coupon: Floating Rate; typically LIBOR + 200-400 bps
• Borrower is charged an annual fee on unused amount (called an “undrawn commitment fee”)
• Revolvers can come in two forms: Asset-Based Loan (ABL) vs. Cash Flow Revolver
⎻ ABL: The maximum amount that can be drawn is based on the value of the company’s liquid assets – most
commonly accounts receivable and inventory are used in the borrowing-base formula
⎻ Cash Flow Revolver: The maximum amount that can be borrowed is tied to the historical cash flow generation of
the company – therefore covenants tend to be more restrictive due to the uncertainty around future cash flows
71
Check out the WSO

LBO Modeling
Term Loans Course for more on
this concept!
Term Loan A (TLA) Term Loans B, C, & D
• TLA refer to secured loans syndicated to banks, and • An institutional term loan (“B”, “C,” or “D”) is a loan
are normally packaged alongside a revolving credit facility for institutional, non-bank investors*
Description facility
• Differs from TLAs in having longer terms while requiring
• Tend to have shorter terms and higher amortization minimal or no principal amortization prior to maturity
levels than other term loans
Tenor ~5 - 8 years
▪ Typically straight-line amortized evenly over its tenor ▪ Typically mandatory amortization will be a percentage
so that full principal is repaid by maturity of the loan that is in aggregate less than the total
principal (e.g. 5% per year on a 7 year loan)
Amortization
▪ In some cases may require no mandatory
amortization
▪ Principal can generally be repaid early by the ▪ Prepayment is generally allowed with institutional term
Prepayment borrower with no prepayment penalties via the loans, however, doing so may come with prepayment
absence of call protection clauses fees depending on the credit terms
Floating
LIBOR + 200-500 bps + 1% Floor
Interest Rate
Since TLAs are backed by collateral and have less risk,
the interest rate tends to be lower than TLB, C, & D
Leverage Typically maximum of 4x
72
*Non-bank lenders often include hedge funds, CLOs, mutual funds, and other institutions
Check out the WSO
LBO Modeling
Debt Tranche Overview

Course for more on
this concept!
Term Loans Subordinated Mezzanine

Revolver Term Loan A Senior Note
B, C, & D Note Financing
Lender Banks Institutional, Non-Bank Investors
Lien
(Priority in Highest Lowest
Bankruptcy)
Floating Fixed Fixed Fixed

LIBOR + 200-500 bps (floor of 1%) 6 - 10% 8 - 12% 12 - 20%
Coupon Cash Interest Cash Interest Cash, PIK, or Both Cash, PIK, or Both
(Interest Rate) + Equity Kicker
[Lowest] [Highest]
Leverage Usually limited to

2 - 4x LTM EBITDA 1 - 2x LTM EBITDA
Limit Inventory + AR
Secured or
Security Secured 1st or 2nd Lien Unsecured
Unsecured
Tenor 3 - 5 years 5 - 8 years 7 - 10 years
Mandatory
None Straight-Line Partial None
Amortization
Prepayment
Yes No
Optionality
Covenants Maintenance + Incurrence Incurrence None
Note: Interest rates provided throughout this presentation may change depending on the market environment 73
at time of debt issuance. Consult debt comps and financing banks for the most up-to-date assessment of the
financing environment
7.4 Excel Preview

End goal: Fill in our financing assumptions and Functions & Formats
calculate fees & OID amount 🍌 IF(ISBLANK(x)) Function = combination of IF & ISBLANK
🍌Fill and calculate debt amounts - hardcode the
○ Example: IF(ISBLANK(A1), A2, A3)
assumed revolver, calculate new term loan,
and pull in Nike’s existing debt from their B/S ○ If A1 is blank, A2 is selected; if A1 is not blank, A3 is selected
○ Assume revolver of $7.5B is reasonable
🍌Calculate leverage ratios
Formulas
🍌Fill in interest, floor, tenor and fee
assumptions 🍌 New Term Loan = % Cash Deal * Total Uses - Cash
○ We would look at debt comps for this 🍌 x of EBITDA = Loan amount / NewCo EBITDA
🍌Calculate Fee & OID dollar amount 🍌 Fee & OID $ = Loan amount x Fee % + IF(ISBLANK(OID
○ This is the trickiest calculation in this
Amount), 0, loan amount * (1 - OID amount)/100
section!
Column J Formulas
74
Lesson 7.5: Sources & Uses of cash
Lesson 7.5: Sources & Uses of Cash

Key terms to understand…
○ Calculate total uses of cash & back into the
sources of cash needed to fund the uses 🍌 Refinanced Target Debt
○ Notice Sources & Uses are always EQUAL
🍌 Where will these numbers come from? I can already tell you
○ Transaction & Financing Assumptions what my uses of
🍌 Why does this matter? cash are...bananas!
○ Helps to visually lay out all assumptions made / No fancy calculation
where money is coming from and going to needed here
○ Calculates $ amount of new equity issues, which
will be important for Accretion / Dilution Analysis
76
Refinanced Target Debt

🍌What is Target Debt?
○ Just how it sounds - the debt the company being acquired has pre-acquisition
🍌What does it mean to refinance?
○ Process of revising the terms of an existing credit agreement, usually to find more
favorable interest rates, payment schedules, and/or other terms outlined in the contract
🍌Let’s put it all together now!
○ Refinancing target debt is the process of the acquirer (Nike) electing to keep the debt
Lululemon already has, but refinance it to receive more favorable terms
○ This is both a use of cash (since the acquirer much “purchase” the debt) but also a source
of cash (since the loan itself funds that purchase)
○ Essentially it means the acquirer is taking on the obligation to pay down that debt at the
new agreed upon terms
77
Sources & Uses Line Items (Refresher)
Uses
Sources
🍌Excess Cash (Cash on Balance Sheet -
🍌Equity Purchase Price (buying the
Minimum Cash)
company)
○ Some will list Balance Sheet Cash as a
🍌Refinanced Debt
Source and Minimum Cash as a Use -
🍌Transaction Fees impact is same
○ Legal, Accounting, Consultants, Bankers 🍌Debt (typically newly issued)
🍌Financing Fees 🍌Equity (newly issued stock)
○ Underwriting Fees, OIDs
78
7.5 Excel Preview

Shortcuts
End goal: Calculate total uses & back into the sources
🍌 Paste Special (Paste Formula)
needed to fund the uses
○ Alt + Control + V (+ F)
🍌 Fill in & add up uses
○ Link to Equity Purchase Price and Financing & ○ Alt + E + S (+ F)
Transaction Fees 🍌 Absolute cell reference (as opposed to relative
○ Sum all uses reference)
○ Calculate % of total for each line ○ F4 → adds “$” which locks in cell references
🍌 Fill in & add up sources Functions
○ Calculate Excess Cash to be used 🍌 Max Function = Maximum between multiple cell
○ Link to Revolver and New Term Loan references
○ Back into New Equity (plug) Concepts
○ Sum all sources 🍌 Plug = Calculation that is backed into to make Balance
○ Calculate % and leverage multiples Sheet or Sources & Uses balance
79
Lesson 7.6: Asset Write Ups & Purchase
Price Allocation
Lesson 7.6: Asset Write Up & Purchase Price Allocation

🍌 What is our key objective for Lesson 7.6?
○ Calculate incremental depreciation & deferred tax
liabilities (DTL)
○ Calculate Fair Market Value of Target Assets &
Liabilities to back into Goodwill created by deal
○ Goodwill will be used to adjust our combine Balance
Sheet (more on this in Modules 8 & 9)
🍌 Book Value & Fair Market Value
🍌 Asset Write-up, Step-up, & Useful life
🍌 Deferred Tax Assets & Liabilities
🍌 Goodwill
🍌 Purchase Price Accounting

81
Book Value v. Fair Market Value
Book Value (BV) Fair Market Value (FMV)

🍌The value of an asset according to the 🍌The price someone is willing to pay for an
company’s balance sheet asset (company, piece of equipment, etc.)
🍌Accounting convention 🍌Market convention
🍌Depends on: the price it was purchased at 🍌Depends on: current market conditions
and depreciation amount
○ Fluctuates often and depends on many
○ Follows predictable path variables
🍌Example: I bought my company’s HQ in 🍌Example: Since the Austin real estate

Austin, TX last year for $10 million and it market has picked up this year, someone
depreciates at $1 million per year offers to by my HQ building for $50 million
○ BV: $9 million ○ FMV: $50 million
82
Asset Write-up, Step-up, & Useful life

🍌Write-up
○ An increase made to the financial statements book value of an asset since its carrying value is less than fair
market value - this is a true-up to “Fair Market Value” (FMV)
○ Generally occurs if a company is being acquired - under purchase price accounting, assets and liabilities are
restated to fair market value since they are often understated
○ It may also occur if the initial value of the asset was not recorded properly
○ This creates additional depreciation and amortization that must be recorded on the income statement - this
creates a Deferred Tax Liability (DTL) in a stock sale (discussed more shorty)
○ Write-ups occurs in both an asset and stock sale
🍌Step-up
○ An increase in the fair market value of assets on tax statements after the beneficiary (AKA the ownership) is
changed
○ A previously discussed, results in an increase in depreciation and amortization expense which could reduce the
taxable income and be beneficial for the acquirer
○ Only enabled during an Asset Sale (not a Stock Sale)
🍌Useful life
○ An accounting estimate of the number of years it is likely to remain in service for the purpose of cost-effective
revenue generation
○ This is used to calculate depreciation and amortization schedules
83
Deferred Tax Assets & Liabilities

Deferred Tax Liabilities (DTL) Calculating DTLs
🍌 Created by taxes that is due in the current period but 🍌 The DTL is created by multiplying the sum of asset write
has not yet been paid - the deferral comes from the ups by the anticipated tax rate
difference in timing between the tax accruing and
🍌 This new DTL will be linked into the balance sheet
actually being paid
🍌 The DTL balance will be amortized each year as the
🍌 DTL records that this tax will be paid in the future
future cash taxes it represents are paid off
🍌 During an stock sale acquisition:
🍌 The annual amortization is sum of D&A creation times
○ A DTL is created because the write-up of assets the anticipated tax rate
○ This creates additional depreciation and
amortization in financial but not tax statements
○ The additional D&A decreases taxable income on
financials statements but not tax statements Deferred Tax Assets (DTA)
○ Therefore, cash taxes that must be paid do NOT
🍌 Items on a balance sheet that are used to reduce
change, though according to the income statement
taxable income in future years
it looks like they would
🍌 These taxes are returned to the business in the form of
○ The DTL is used to reconcile the disparity between tax relief in future years
book and cash taxes and indicate that the company
will still pay these cash taxes
84
Goodwill
🍌 What is Goodwill?
○ An intangible asset created through the acquisition of a company
○ It’s the portion of the purchase price higher than the sum of the net
fair value of all of the assets and liabilities purchased in the Max’s Bananas Example
acquisition 1. Find purchase price
○ Reason for goodwill include: intellectual property, processes, brand Max’s Banana is being bought for $100mm
name, customer base and relations, company culture, etc. 2. Write up assets and liabilities
○ Goodwill has an indefinite life (unlike most assets)

FMV Asset $70mm
🍌How do we calculate Goodwill?

FMV Liabilities $20mm
○ Goodwill = Purchase Price - (Fair Market Value of Assets - Fair
Market Value of Liabilities)
3. Calculate proceeds to company
🍌Why does this matter?
PP - (FMV A - FMV L) = GW
○ Goodwill ends up being the plug that reconciles the fair value of 100 - (70-20) = $50m of Goodwill
assets to the purchase price
4. Can you think of what this might
represent for Max’s Bananas?
85
Purchase Price Accounting & Stock v. Asset Sale 2.0

🍌 Now that we understand write-ups, step-ups, DTLs, & Goodwill, let’s revisit Stock v. Asset Sales and tie in with Purchase
Price accounting
🍌 Purchase Price Accounting: when an acquirer allocates the purchase price into assets and liabilities - it’s the process of
writing/stepping assets and liabilities up (potentially creating DTLs/DTAs in the process) and then calculating goodwill
Stock Sale Asset Sale

🍌 Financial statements record this difference between the 🍌 No Deferred Tax Liability is created since the taxable
book and tax basis of assets via DTA or DTL created by income is decreased on both the financial and tax
the transaction statements
🍌 Unlike asset sales, goodwill is not amortized in a stock 🍌 Additionally, tax accounting allows for goodwill to be
sale, so no DTAs are created amortized which provides further tax savings and may
🍌 In stock sales, acquirers can acquire target DTAs create DTAs
(usually in the form of NOLs), subject to specific usage 🍌 Net operating losses (“NOLs”) are the most common
limitations per IRS guidelines DTAs; in asset sales - these are traditionally ineligible to
be acquired by the buyer
So which structure is better?

🍌 Again, generally, buyers prefer asset sales, whereas sellers prefer stock sales
🍌 However, the transaction structure is a joint decision between the buyer and the seller
🍌 Sellers generally prefer stock sales since they are able to more fully shed post-close liabilities; most M&A transactions
are completed as stock sales given this seller preference
🍌 Certain tax elections such as a 338(h)(10) election may permit a buyer to complete a stock sale while receiving tax
treatment consistent with an asset sale
86
7.6 Excel Preview

End goal: Calculate Goodwill created by the transaction
🍌 Make assumptions about Tangible Asset % Write-up and Useful Life
and use these to calculate incremental depreciation & deferred tax
liabilities
🍌 Repeat these steps for Intangible Assets
🍌 Use these numbers to calculate Fair Market Value of Target Assets
🍌 Repeat for Fair Market Value of Target Liabilities
🍌 Finally, calculate Goodwill
Formulas
🍌 Asset write-up = % Write-up * Assets from Balance Sheet
🍌 Incremental depreciation = Asset Write-up / Useful life
🍌 Incremental deferred tax liabilities (using IF Function)
○ If stock sale = Nike Tax Rate * Asset Write-up
○ If asset sale = 0
🍌 Write of of target deferred tax assets (using IF Function)
○ If stock sale = 0
○ If asset sale = (-1) * Deferred income taxes and other assets
87
Lesson 7.7: Module 7 Review & Summary
Module 7 Review and Summary
🍌Lesson 7.2 - Building to Target Purchase

Price
🍌Lesson 7.3 - Key Transaction Assumptions
🍌Lesson 7.4 - Financing Assumptions & Fees
🍌Lesson 7.5 - Sources & Uses of Cash
🍌Lesson 7.6 - Asset Write Ups & Purchase

Price Allocation
89
Lululemon - Simplified Analysis
Balance Sheet Adjustments & Accretion / Dilution Analysis
Nike Acquires Lululemon - Simplified Analysis Lesson 8.1
Module 8 Overview Module 8 Excel Output
🍌Lesson 8.2 - Simplified Balance Sheet

adjustments
🍌Lesson 8.3 - Simplified Income, Synergies, &

🍌Lesson 8.4 - Accretion / Dilution Analysis
🍌Lesson 8.5 - Module 8 Review & Summary
92
Lesson 8.2: Simplified Balance Sheet
Adjustments
Lesson 8.2: Simplified Balance Sheet Adjustments

○ Make adjustments to reconcile to a Pro Forma
Balance Sheet
○ Specifically, we need to reduce cash, increase debt
liabilities, and add new equity issued
○ This is a simplified version of the balance sheet - we
will look at a more detailed version in module 9
🍌 Why does this matter?
○ So that we are able to make adjustments to get to
Pro Forma Net Income, which will ultimately be
used to calculate our EPS

🍌 Pro Forma
🍌 Adjustment rational
94
Pro Forma
🍌Pro Forma simply means “post-transaction”
🍌You will hear this used as “Pro Forma Financials” but it can also be used to refer to deal structure
(“Pro Forma Structure”), ownership structure (“Pro Forma Ownership”), and more
○ Can be used to describe anything that will change as a result of some kind of transaction or
event
○ In this course, any time Pro Forma is mentioned, it refers to post- Nike and Lululemon merger
(for the first two analyses) or post- divestiture of the China Business Unit (for the third analysis)
🍌Other deals (besides M&A) this could also refer to...
○ Post Initial Public Offering (IPO) Deals, Deals,

Deals, Delas...
○ Post operational change
○ Post debt financing
○ The list goes on and on...
95
Adjustment Rational
🍌 In simplified Accretion / Dilution Analysis, we just show balance sheet adjustments for the year of the transaction
BUT for a detailed analysis we need to do this for future years
🍌 Identifiable Intangible Assets Adjustment, which includes…
○ Intangible asset write-up -- from purchase price accounting
○ OID & Fees -- this is because OID and Financing Fees are capitalized to the balance sheet and amortized over
their useful life since they have a “useful life” of many years (throughout the term of the loan)
🍌 Equity Adjustments, which includes...
○ Add new equity to fund the transaction
○ Subtract current target equity -- this gets wiped out in the transaction
○ Subtract transaction fees -- it is assumed that the transaction fees are paid for in cash from the balance sheet,
which is subtracted from shareholder equity
🍌 Goodwill Adjustment, which includes two steps...
○ (1) Adding the Goodwill increase we calculated earlier -- this is because goodwill is created as a result of the
transaction
○ (2) Subtracting the current target goodwill -- this gets wiped out as a result of the transaction
🍌 Deferred Tax Asset Adjustment, which includes…
○ The target tax assets being wiped out since they cannot be carried over to the acquirer as previously mentioned
96
8.2: Excel Preview

Formulas
End goal: Create a balanced Pro Forma Balance 🍌 Intangible assets increase = intangible asset write-up
Sheet that reflects the impact of the M&A + OID & Fees
transaction
🍌 Equity decrease = -(Lulu’s Equity) - transaction fees
🍌Link and calculate in adjustments to assets
on balance sheet
○ Adjust for cash used during transaction
○ Adjust for increased PPE, Intangible Assets,
and Goodwill
🍌Link and calculate adjustment to liabilities on
balance sheet
○ Adjust for increase in Debt and Deferred
Income Taxes
🍌Link and calculate adjustments to equity
🍌Ensure Assets = Liabilities + Equity
97
Lesson 8.3: Simplified Income, Synergies,
& Transaction Adjustments
Lesson 8.3: Income, Synergies, & Transaction Adjustments

○ Make assumptions about synergies and
adjustments to net income to calculate Total after 🍌 Synergies (Cost & Revenue)
tax transaction related income / (expenses) 🍌 Interest income
🍌 Cash v. GAAP EPS
○ Transaction related income flows into Pro Forma
Net Income, which is used to calculate EPS and is
an essential piece of our Accretion / Dilution Analysis
99
Cost & Revenue Synergies

Cost Synergies Revenue Synergies
🍌Savings in operating costs expected after 🍌Two companies combined generate higher
the merger of two companies sales than the sum of their individual sales
🍌Examples: 🍌Examples:
○ Layoffs (particularly of C-Suite employees) ○ Opportunity for up-selling and cross-

of positions that are redundant selling
○ Elimination of supply chain redundancies ○ Reduction of competition

○ Eliminating research & development ○ Access to new markets and customers
redundancies 🍌For conservatism, many bankers don’t
○ Increased marketing channels and model in revenue synergies since they are
resources less certain than cost synergies
Synergies: the sum of two companies is greater than individual parts (1 + 1 = 3)
100
Interest Income
🍌Interest income on Cash
○ Earnings generated by investments such as money market fund, government bonds,

or investment in other companies
○ We assume that if there is money sitting on a company’s balance sheet, that money
will be invested to return
○ To be conservative, It is usually assumed that the return on this cash invested is quite
low (usually less than 1%)
🍌Interest Income on Cash Forgone
○ This line item is the opportunity cost of the returns on cash that is forgone due to the
cash that is needed to be used on the transaction
○ We calculate this as the assumed return on cash * (Nike cash + Lulu cash - Min
Cash)
101
Cash v. GAAP EPS
Cash EPS GAAP EPS
🍌Cash flow generated by a company on a 🍌Income generated by a company on a

per share basis per share basis
🍌Free of non-cash components, such as 🍌Includes non-cash components, such as

depreciation and amortization depreciation and amortization
🍌Think of it as Cash Flow Statement EPS 🍌Think of it as Income Statement EPS
🍌Cash flow / Shares 🍌Net Income / Shares
Neither is “better” than the other though each may be better suited for certain
scenarios -- both give a different lens into company performance
102
Formulas
8.3: Excel Preview 🍌 Total Pre-Tax Revenue Synergies =
calendarized combined revenue for Lulu and
End goal: Calculate Total after tax transaction related income / Nike * Revenue Synergies * Gross Margin
(expenses) 🍌 Total Pre-Tax Revenue Synergies =
🍌Make assumptions on Revenue and Cost Synergies and calendarized combined SG&A for Lulu and
calculate each Nike * cost synergies as % of SG&A
🍌Sum Revenue and Cost Synergies to calculate Total Synergies 🍌 Interest Expense from New Debt = Interest
🍌Calculate interest expense from new debt & interest forgone on rate * New Debt
cash ○ Interest rate = Maximum of LIBOR or
🍌Subtract out D&A if GAAP EPS Interest Floor + rate / 10000
🍌Adjust for Synergies & Taxes 🍌 Additional D&A Expense =

○ If Cash EPS, 0
🍌Calculate total
○ If GAAP EPS, -(total new D&A calculated)
🍌 Amortization of Financing Fee =
○ If Cash EPS, 0
○ If GAAP EPS, -(Fee & OID $ /
Amortization Tenor)
🍌 Taxes on adjustments =
sum of adjustments * (1 - tax
rate)
103
Lesson 8.4: Accretion / Dilution Analysis

○ (Finally) run our simplified Accretion / Dilution 🍌 Additional Pre-tax Synergies to
Analysis to see if this transaction is even in the Breakeven
ballpark of being Accretive to Nike
○ If this simplified analysis is accretive, it’s worth
building out a detailed analysis to get more precise
on exactly how Accretive this deal could be
○ If it is not, then this idea is not worth pursuing and
it is not worth the time of building a detailed model
105
Additional Pre-tax Synergies to Breakeven

🍌Conceptually, this is the minimum amount of synergies needed to make the deal EPS neutral
🍌Synergies are often assumptions that can often be off, so large numbers here give comfort that
the accretive nature of the deal is not solely predicated on these synergy assumptions
🍌If the deal is accretive, this number will be negative
○ This tells us how much in synergies could we give up and still break even
🍌If the deal is dilutive, this number would be
○ This tells us how much in synergies we would need to add to break even
🍌Note this is pre-tax -- since our income is post-tax, we must divide by (1 - tax rate) to gross this up
to a pre-tax amount
🍌Calculation: Multiply our $ accretion or dilution by the Pro Forma FDSO to get Net Income
accretion or dilution and then dividing that by (1 - tax rate)
106
Formulas
8.4: Excel Preview 🍌 New Shares Issued = New Equity Issued
(in $) / Nike’s Share Price at Transaction
End goal: Calculate how Accretive or Dilutive this deal seems to be 🍌 Pro Forma Net Income = Nike NI + Lulu
and interpret what this means NI + Transaction NI Adjustment
🍌Calculate the new shares issued in the transaction 🍌 Pro Forma Shares Outstanding = Nike
🍌Calculate Pro Forma Net Income and Pro Forma Shares FDSO + New Shares Issued
Outstanding 🍌 Accretion / (Dilution) per share = Pro
🍌Use these to calculate Pro Forma EPS Forma EPS - Standalone RPS
🍌Calculate how Accretive or Dilutive this is by comparing this to 🍌 Accretion / (Dilution) % = (A/D per
Nike’s EPS had there not been a deal both in $ and % terms Share) / Standalone EPS
🍌Calculate Additional Pretax Synergies Required to Breakeven 🍌 Pretax Synergies to Breakeven = -(PF
🍌Step back and ask “what do these numbers mean?” Shares Outstanding) * (A/D per Share) / (1
- tax rate)
107
Module 8 Review & Summary
🍌Lesson 8.2 - Simplified Balance Sheet

adjustments
🍌Lesson 8.3 - Simplified Income, Synergies, &

🍌Lesson 8.4 - Accretion / Dilution Analysis
109
Lululemon - Detailed Analysis
Combined Three Statement Model & Accretion / Dilution
Analysis
Module 9 Overview Module 9 Excel Output
🍌Lesson 9.2 - Income Statement

🍌Lesson 9.3 - Working Capital
Schedule & Cash Flow Statement
🍌Lesson 9.4 - Debt & Interest
Schedule
🍌Lesson 9.5 - Credit Metrics &
Balance Sheet
🍌Lesson 9.6 - Tax Schedule
🍌Lesson 9.7 - Accretion / Dilution
Analysis
🍌Lesson 9.8 - Sensitivity Tables
🍌Lesson 9.9 - Module 9 Review &
Summary
112
Lesson 9.2: Income Statement
Nike Acquires Lululemon - Detailed Analysis Lesson 9.2
Lesson 9.2: Income Statement

○ Adjust Income Statement for

transaction to create combined Pro
Forma projections
○ This will be the basis for helping us

calculate Pro Forma Net Income
used to calculate EPS and perform our
Accretion / Dilution Analysis
🍌 Drivers
🍌 Base, Downside, Upside Cases
114
Check out the WSO

Three Statement Course
Drivers & Various Cases (lesson 9.4) for more on
this concept!
🍌What are model cases?
○ Since there is never certainty about what will happen in the future, it’s common to model
multiple different “cases” or scenarios of how a company’s financial projection might play
out
○ The most common case split is to create a base/realistic case, an upside/bull case, and
a downside/bear case
🍌This is where our drivers come into play…
○ Our drivers section is where we will put the various assumptions that drive these
different scenarios, hence the name
○ The most common drivers you’ll see are revenue growth, gross margin, and EBITDA
margin
○ The key is to make these drivers dynamic so by changing one cell, you change the case
for the entire model -- common excel functions to use for this are Index / Match and
Offset functions
115
Nike Acquires Lululemon - Detailed Anaysis Lesson 9.2
9.2 Excel Preview

End goal: Create a (almost) completed combined Pro Forma Income
Statement for the transaction
🍌 Make assumptions for different cases in drivers section
🍌 Fill in synergy adjustments based on these assumptions
🍌 Link Asset Write-ups and Calculate EBITDA and EBIT
🍌 Link Net Interest Expense and Taxes (to be filled in later)
Functions
🍌 Index Match Function = look up value of cell based on matching
criteria
○ =INDEX(values to return, MATCH(criteria to match, area to look for
matching, 0)
Formulas
🍌 Revenue Synergies = (Lulu + Nike revenue) * Rev Synergy
Assumption
🍌 Synergy COGS = Revenue Synergies * Margin Assumption
🍌 Cost Synergies = (Lulu + Nike SG&A) * Rev Synergy
Assumption
🍌 EBITDA from Revenue and Cost Synergies = Total EBITDA -
Nike EBITDA - Lulu EBITDA
🍌 EBIT from Revenue and Cost Synergies = Total EBIT - Nike
EBIT - Lulu EBIT
116
Lesson 9.3: Working Capital Schedule &
Cash Flow Statement
Lesson 9.3: Working Capital Schedule & Cash Flow

○ Complete our Working Capital
○ Working Capital Schedule links back
to Balance Sheet and Change in
NWC flows to Cash Flow
○ Cash flow tells us how much debt
can be paid down with free cash
(more here shortly)
🍌 Working Capital
🍌 Account Receivable & Payable Drivers
○ Days Sales Outstanding (DSO)
○ Inventory Turns
○ Days Payable Outstanding (DPO)
118
Check out the WSO

Three Statement
Working Capital Course for more on
this concept!
🍌Working capital is the capital needed for day-to-day operations of a business
🍌Net Working Capital (or NWC) is calculated as: current assets - current liabilities - cash
○ Working capital is a measure of liquidity, operational efficiency, and short-term financial health
🍌As a business grows, it will often need to hold more working capital (e.g. inventory build), which represents
a use and drawdown of cash on the cash flow statement
🍌In order to project working capital, we must project out current assets and liabilities using the below drivers
○ Accounts receivable: day sales outstanding (discussed next)
○ Inventories: inventory turns (discussed next)
○ Prepaid expenses: prepaid expenses as a % of revenue → catch-all current assets bucket, including
things like: prepaid taxes, prepaid rent, prepaid utilities, etc.
○ Accounts payable: days payable outstanding (discussed next)
○ Accrued liabilities: accrued liabilities as a % of COGS → catch-all current liabilities bucket, including
things like: employees salary and bonus, taxes payable, and unbilled goods and services received
119
Check out the WSO

Three Statement
Working Capital Drivers Course for more on
this concept!
🍌Day sales outstanding (DSO)

○ A measure of the average number of days that it takes a company to collect payment for a sale
○ To calculate DSO: Accounts Receivables / Credit Sales x 365 [use sales as proxy for credit sales]
○ Therefore, to calculate Accounts Receivable: DSO / 365 x Credit Sales [use sales as proxy for credit sales]
🍌Days payable outstanding (DPO)

○ A measure of the average number of days that a company takes to pay its bills and invoices to its suppliers,
vendors, or financiers
○ To calculate DPO: Accounts Payable / COGS x 365
○ Therefore, to calculate Accounts Receivable: DSO / 365 x COGS
🍌Inventory turns
○ financial ratio showing how many times a company has sold and replaced inventory during a given period
○ To calculate inventory turns: COGS / Inventory
○ Therefore, to calculate inventory: COGS x Inventory Turns
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Nike Acquires Lululemon - Detailed Anaysis Lesson 9.3
9.3 Excel Preview Formulas
End goal: Create a completed Working Capital Schedule 🍌 Accounts Receivable = Total Revenue * (DSO / 365
days)
and (almost) Completed Cash Flow Statement
🍌 Inventory = COGS / Inventory Turns
🍌 Make assumptions for the drivers of the Working
🍌 Accounts Payables = COGS * (DPO / 365 days)
Capital Schedule
🍌 Change in NWC = (this year NWC) - (last year NWC)
🍌 Use these to calculate totals for Current Assets and
Liabilities
🍌 Calculate Net Working Capital and Change in Net

working Capital
🍌 Link NWC from Working Capital Schedule to Cash

Flow Statement
🍌 Link Amortized Financing Fees & OID, Mandatory

Amortization on Debt, and Revolver Draw to Debt
and Interest Schedule
121
Lesson 9.4: Debt & Interest Schedule
Lesson 9.4: Debt & Interest Schedule

○ Calculate debt balances at the end of each 🍌 Corkscrew
projected year and calculate interest for each year
🍌 Circularity & Net Interest
○ Debt balances flow into balance sheet and impact
the amount of interest paid each year
○ Interest directly impacts earnings (more interest =
less earnings), which impacts EPS and Accretion /
Dilution
123
Corkscrew
🍌 This is an excel pattern we see often in our models -- named since resembles the shape of a
corkscrew
🍌 Based on idea that ending of last year is equal to the beginning balance of this year
○ Changes from this year are then subtracted to give the ending balance of this year, which is
equal to the ending balance of next year
🍌 Used for items on the balance sheet, particularly:
○ Debt (Revolver, Term Loans, etc.)
○ Cash balances
Beginning balance
Ending balance
124
Circularity & Net Interest

🍌 Circularity: a formula, that visits its own cell or another cell more than once in its chain of calculations, creating
an infinite loop
🍌 The problem is that if you have an error in your calculation, that error gets caught in this loop
🍌 Circuit breaker: resets the circular calculations by multiplying everything by 0, thus fixing the model and allowing
you to continue from where you'd left off
🍌 Interest expense is circular, so we must build in a circuit breaker
🍌 Also make sure iterative calculations are turned on in your formula settings
Interest
Expense
Debt Net
Balance Income
Circuit breaker
Free
Debt
Cash
Paydown
Flow
125
9.4: Excel Preview

End goal: Calculate projected debt balances at the end of each year as well as interest expense for each
projected year
🍌Calculating Cash Flow Available for Debt Service 🍌Creating the Existing Debt Schedule
🍌Creating the Revolver Schedule 🍌Interest Expense – Floating Rates / Fixed Rates
and Financing Fees & OID
🍌Creating the Term Loan Schedule
🍌Linking to Income and Cash Flow Statements
Buckle up…
this one is a long
(but important) one!
126
9.4: Excel Preview (continued)

1. Calculating Cash Flow Available for Debt Service
⎻ Calculate how much excess cash flow and balance sheet cash is available to make discretionary debt payments,
after mandatory debt service has been fulfilled
⎻ Cash Flow After Mandatory Debt Service = Free Cash Flow – Sum(Mandatory Amortization, Preferred Stock
Cash Dividend)
2. Creating the Revolver Schedule

⎻ Revolvers are first a line of defense should cash flow turn negative, but it also most senior so must be repaid first
⎻ Draw (Paydown) = -MIN(Beginning Revolver Balance, Free Cash Flow Available for Optional Debt Paydown
⎻ Make sure to run a compliance check that tells you if your ending balance exceeds your facility limit in any year --
if ending balance does exceed your limit, that means you are overdrawn
127
Check out the WSO

LBO Course for more
on this concept!
3. Creating the Term Loan Schedule

⎻ Term loan paydown is next in the line of the cash sweep, as it is secondary in seniority to the revolver
⎻ Mandatory amortization = minimum of either cash after revolver paydown OR the beginning balance of the loan
⎻ Optional Paydown = minimum of either cash after mandatory amortization paydown OR the beginning balance
o This ensures you don’t paydown more than your remaining balance if the term loan is almost paid off
4. Creating the Existing Debt Schedule

⎻ If there are debt instruments, you will mimic this build for each instrument – further types of debt and how to build
out their respective schedules and debt waterfall is covered in the LBO Modeling course
⎻ The mandatory amortization formula follows the same logic as the term loan
⎻ The optional paydown formula is effectively the same, but this time we must also account for optional paydown on
the term loan as we assume it is senior to our existing debt
128

5. Interest Expense – Floating Rates / Fixed Rates
⎻ Floating rate loans typically have an interest rate floor (minimum), so when calculating the interest rate, be sure to
take the greater of LIBOR or the floor in each year
⎻ Make sure to calculate your interest by multiplying the rate by an average of the beginning and ending balance of
debt in each period
⎻ A fee will be charged on any undrawn amount of the revolver in each year
6. Financing Fees & OID

⎻ For accounting purposes, amortization of financing fees and OID is treated as part of total interest expense
⎻ Straight line amortize financing fees over the life of each loan
129

7. Linking to Income and Cash Flow Statements
⎻ Link Net Interest Expense into the Income Statement
⎻ Link Amortized Financing Fees & OID into Cash Flow from Operations
⎻ Complete Cash Flow from Financing Activities
o Mandatory Amortization is a sum of Mandatory Amortization from our Term Loan, as we are assuming no
mandatory amortization on existing debt
o (Discretionary Debt Paydown) / Revolver Draw is a sum of our Revolver Draw (Paydown) and Optional
Paydown from the Term Loan and Existing Debt
⎻ Once this is done, do a thorough check of the model at this stage to make sure no formulas were made in error
130
Lesson 9.5: Credit Metrics & Balance Sheet
Lesson 9.5: Credit Metrics & Balance Sheet

○ Summarize debt projections in the Credit Metrics 🍌 Credit Metrics
section and complete our balance sheet
○ Total Debt / EBITDA
○ Net Debt / EBITDA
○ Credit metrics give a visual summary of debt projections -
○ Net Debt / (EBITDA - Capex)
this is especially important for debt lenders to see to
○ EBITDA / Total Interest
justify the amount they will lend
○ Ensuring the balance sheet balances will help ensure the ○ EBITDA / Cash Interest
accuracy of our model ○ Fixed Charge Coverage Ratio
○ Neither of these have a direct impact on EPS but are ○ Free Cash Flow / Total Debt
important to complete for good model hygiene ○ % Debt Paydown
132
Credit Metrics
🍌 Credit Metrics: Tools that assist the credit analysis -- help lenders and investors determine
whether corporations are capable of fulfilling financial obligations
🍌 Common metrics include:
○ Total Debt / EBITDA - Standard Leverage Ratio
○ Net Debt / EBITDA - Leverage Ratio giving credit for having cash on hand
○ Net Debt / (EBITDA - Capex) - Most applicable if capex is a large amount of cash flow
○ EBITDA / Total Interest - Standard Interest Coverage Ratio
○ EBITDA / Cash Interest - Interest Coverage Ratio taking out non-cash interest
○ Free Cash Flow / Total Debt - % of debt that could be paid down by cash flow generated in
period
○ % Debt Paydown - Shows what % of original debt amount can be paid down over several years
- most debt lenders want to see the ability to pay down at least 60% of debt in ~5 years
133
9.5: Excel Preview Formulas

End goal: Fill in credit metrics and complete balance sheet 🍌 PP&E Balance = Previous Balance +
Capex – Depreciation Expense
🍌 Fill in credit metrics
🍌 Intangible Balance = Previous Balance -
○ Create memo section with metrics & calculate credit metrics just Amortization Expense
discussed
🍌 Def. Financing Fee Balance = Previous
🍌 Fill in reminder of Balance sheet Balance + Total Financing Fees & OID
○ Many long-term assets and liabilities do not change in projected Amortization
years: goodwill, deferred income taxes and other assets, income 🍌 Equity Adjustment = New Equity
taxes payable, and deferred liabilities are all assumed to stay Investment - Book Equity - Transaction
constant Fees
○ The line items we will need to build out are: PP&E, Identifiable 🍌 Equity in Each Year = Prior Year Equity
intangible assets, deferred financing fees and OID, and Equity + Net Income - Dividends
134
Lesson 9.6: Tax Schedule
Lesson 9.6: Tax Schedule

○ Calculate projected Pro Forma taxes
○ Taxes are subtracted from Earnings which

impacts EPS and our Accretion / Dilution Analysis
○ Higher taxes = lower earnings = lower EPS = higher

chance of Dilution
Key terms to understand...

🍌 Net Operating Losses (NOLs)
🍌 Disallowed Interest Carryforward
🍌 2017 Tax Reform
136
Net Operating Loss & Disallowed Interest Carryforward

Net Operating Loss
🍌A net operating loss (NOL) is created when a company's allowable deductions exceed its taxable
income within a tax period
○ Allowable deductions exceed taxable income when business income is negative
🍌NOLs can be used to offset company tax payments in future years through loss carryforward
○ A business loss can only be used to offset business income but not personal income
🍌The IRS gives a 20-year period to use NOLs
○ Companies can carry NOLs forward for 20 years
Disallowed Interest Carryforward

🍌As we will discuss next, some interest expense can be deducted from taxable income to lower
taxes
🍌This amount is limited, so the “Disallowed Interest Carryforward” is the amount of interest expense
disallowed as a deduction in the current year that is carried forward to the next taxable year
137
Summary of 2017 Tax Reform

Summary of tax reform elements relevant to Leveraged Buyouts
Current Pre-Tax Cuts & Jobs Act (TCJA)
C-Corp ▪ 21% Rate ▪ 35% Rate

Tax Rate
Lowered Pass-Throughs ▪ 29.6% Rate
(Partnership, (Assumes full benefit from 20% deduction for Qualified ▪ 39.6% Rate
LLCs, LPs) Business Income)
▪ Limited to 30% of EBITDA until 2021

Interest Expense: Limits to
▪ Starting 2022, switches to 30% of EBIT ▪ 100% of interest was deductible
Deductibility
▪ Unused balance carries forward
▪ 100% of tangible property expenses able
to be immediately expensed
▪ Capex was depreciated over useful life
Capex: Temporary (Tangible property defined as having a useful life
and associated depreciation was
Immediate Expensing generally <20 years; real estate not included)
deductible
▪ Reduces to 80% in 2023, 60% in 2024,
40% in 2025, 20% in 2026
▪ NOLs could offset 100% of taxable
▪ Carryforward can only offset 80% of
Net Operating Losses taxable income
income
(NOLs) ▪ Can be carried forward but not back
▪ 20-year carryforward and 2 year carry
back
138
9.6 Excel Preview

End goal: Calculate projected Pro Forma Taxes for years following
the transaction
🍌Determine what the limit to interest deduction is
🍌Calculate disallowed Interest Carryforward
🍌Calculate accelerated depreciation of capex
🍌Depreciation Spend Foregone
🍌NOL Overview and Build
🍌Completing the Tax Schedule
139
Excel Preview: Interest Deduction Limit

🍌 First we must determine what our limit on interest deduction is
🍌 We calculate this by taking the minimum of the net interest expense in that year OR 30% of EBITDA or EBIT
🍌 The unused balance carries forward
140
Excel Preview: Disallowed Interest Carryforward
🍌Any interest above the deduction limit calculated should be accrued and can be carried forward in years
when interest expense is less than the interest deduction limitation
🍌The carryforward used cannot exceed the difference between actual interest expense and the interest
deduction limit
141
Excel Preview: Accelerated Capex Expensing

🍌Recall that in the Summary of 2017 Tax Reform the percentage of capex that can be depreciated
for tax purposes begins to taper off starting in 2023
🍌Whether to depreciate capex is elective, so we could set the switch to “No” if we wanted to
🍌Don’t forget to adjust your EBITDA and EBIT calculations for your interest deduction limit
⎻ Rapid capex expensing would come in the form of additional D&A which should be subtracted
from EBIT and added to EBITDA for tax purposes
142
Excel Preview: Depreciation Spend Foregone

🍌Given that capex is immediately depreciated, we must increase taxable income for foregone
depreciation that was still included in GAAP income in future years
🍌Don’t forget to adjust your EBITDA and EBIT calculations for foregone depreciation
⎻ Foregone depreciation would come in the form of reduced D&A which should be added to EBIT
and subtracted from EBITDA for tax purposes
143
Excel Preview: NOL Overview and Build
🍌As previously discussed, losses generated in one period can accrue and be used to offset positive
net income in future periods
🍌Remember, based on the 2017 Tax Reform, Carryforward of NOLs are limited to only 80% of
taxable income in any given year
144
Excel Preview: Completing the Tax Schedule

• We’ll make sure to set a max formula so that in years when taxable income is less than zero, taxes
will have a floor of zero
• Finally, we’ll link taxes to the Income Statement
145

○ (Finally) run our detailed Accretion /

Dilution Analysis to see how accretive
or dilutive this transaction is in the
projected years
○ This tells us if this deal is worth

pursuing for Nike!
○ All of our work over the past several

modules has been leading up to this
147
9.7: Excel Preview

End goal: Calculate how accretive or dilutive this deal
is and interpret meaning
🍌 Calculate Nike Post-Transaction FDSO
🍌 Calculate projected EPS
🍌 Calculate shares repurchased for projected years

(circular!)
🍌 Look at our Accretion / Dilution Analysis by

comparing Pro Forma EPS to Standalone EPS
Formulas
🍌 Projected Share Price = Projected P/E Multiple *

Projected EPS
🍌 Total Shares Repurchased = Total $ amount to

repurchase shares / projected share price
🍌 Check out Lesson 8.4 for more details on other

formulas!
148
Lesson 9.8: Sensitivity Tables
Lesson 9.8: Sensitivity Tables

○ Run “What If” Analyses to understand what the impact would be 🍌 Sensitivity tables
if we changes different assumptions ○ Purchase Price & % Stock on
Acc./Dil
🍌Why does this matter?
○ Purchase Price & % Stock on
○ Though assumptions are chosen with much thought and rational, leverage
at the end of they day they are educated guesses and may be ○ Purchase Price and Cost
wrong and subject to change Synergies on Acc./Dil.
○ Purchase Price and Revenue
○ Sensitivity tables help give a sense of how the projected
Synergies on Acc./Dil.
accretion or dilution (or leverage, etc.) may change if
○ Purchase Price and Pro-Forma
assumptions change Tax Rate on 2022 Acc./Dil.
Lesson 9.8
Excel
Output
150
Sensitivity Analyses
🍌What are sensitivity analyses?
○ Determine how different values of an independent variable affect dependent variables
○ They study how various sources of uncertainty in a model contribute to the model's output
🍌Why are they used in M&A models?
○ When running an accretion/dilution analysis, many transaction and company assumptions are
used
○ It is important to understand how assumptions impact the ultimate accretion/dilution
○ Sensitivities allow us to understand how changing a transaction assumption impacts

accretion/dilution
151
Purchase Price and % Stock on 2020 Acc./Dil.
152
Purchase Price and % Stock on 2022 Acc./Dil.
153
Purchase Price and % Stock on Entry Leverage
154
Purchase Price and Cost Synergies on 2022 Acc./Dil.
155
Purchase Price and Revenue Synergies on 2022 Acc./Dil.
156
Purchase Price and Pro-Forma Tax Rate on 2022 Acc./Dil.
157
9.8: Excel Preview

Excel shortcuts
End goal: Create output that shows how a change in 🍌 Datatable = Alt + D + T
premium to current share price & % of purchase ○ Input row and column values and press enter
consideration in stock impacts the Accretion/Dilution
analysis in year 2022E
Formulas
🍌Link corner cell of data table to Accretion / (Dilution) %
🍌 Implied Offer Price per Share = Current Share
for 2022E
Price * (1 + % premium)
🍌Make assumptions for ranges of premium & % of
🍌 Implied Entry Multiple = [(Implied Offer Price
purchase consideration in stock
per Share * Entry FSDO) + Entry Debt - Entry
🍌Tell excel to fill in the datatable with our assumptions Cash] / Entry EBITDA
🍌Calculate implied offer price per share and implied
entry TEV / EBITDA multiple
158
Module 9 Review and Summary

🍌Lesson 9.2 - Income Statement
🍌Lesson 9.3 - Working Capital

🍌Lesson 9.4 - Debt & Interest

Schedule
🍌Lesson 9.5 - Credit Metrics &

Balance Sheet
🍌Lesson 9.6 - Tax Schedule
🍌Lesson 9.7 - Accretion / Dilution

Analysis
🍌Lesson 9.8 - Sensitivity Tables

160
Module 10: Nike Sells China
Business Unit - Detailed Analysis
Pro Forma Three Statement Model & Accretion / Dilution Analysis
Nike Divesting China Unit
🍌To provide a complete picture of M&A modeling, we’ll now look at what a divestment or sell
side M&A model looks like
🍌There are many reasons why a company would divest one of its business units:
⎻ The business unit is not core to the larger company operations
⎻ There are dis-synergies to the business unit
⎻ There is anti-trust pressure to divest
⎻ The stand-alone valuation is higher (and accretive to the parent company) than it is by
remaining a wholly-owned subsidiary or business unit
163
Module 10 Overview
🍌Lesson 10.2 - Key Assumptions &

Asset Sale Price
🍌Lesson 10.3 - Model Walk-Through

& Accretion / Dilution Analysis
🍌Lesson 10.4 - Closing Thoughts
164
Lesson 10.2: Key Assumptions & Asset Sale
Price
Nike Sells China Business Unit - Detailed Analysis Lesson 10.2
Lesson 10.2: Key Assumptions & Asset Sale Price

○ Make assumptions on what to do with Divestiture Proceeds 🍌 Divestiture Proceeds
○ Calculate the sale price of Nike’s China Business Unit as 🍌 Capital Gains Tax
well as Capital Gains Taxes
○ Whether Nike decides to buyback shares or do something else
with the proceeds will have a direct impact on Accretion /
Dilution
○ Capital Gains is a cash outflow on the Cash Flow Statement that
decreases cash on hand to service debt, increasing interest
and decreasing EPS
166
Divestiture Proceeds & Capital Gains Taxes

Divestiture Proceeds
🍌 What are divestiture proceeds?
○ This is the money that parent company receives for divesting from one of its businesses
🍌 What do companies do with these proceeds?
○ If the proceeds are in cash, companies can use proceeds from divestitures for a range of activities – the most common
are repurchasing stock, paying a dividend, paying down debt, or holding the extra money in cash
○ In some situations, this could be the reason for the divestiture
○ This has large implications on the accretion/dilution
Capital Gains Taxes

🍌 What are capital gains taxes?
○ The capital gains tax is a levy on the profit from an investment that is incurred when the investment is sold
○ Historically this tax rate has been much lower than income taxes
🍌 How does this work in an M&A transaction?
○ Just like you pay taxes if you were to sell a stock for more than you bought it for, the same is true in M&A
○ The difference between the book value of the business and the sale price of the business is taxed as investment at the
capital gains rate
167
10.2: Excel Preview

End goal: Make assumptions about how to use the proceeds Formulas
plus calculate amount of proceeds and the capital gains taxes 🍌 Nike China Enterprise Value =
Nike China EBITDA * EBITDA
🍌Make assumption of how much cash is used to buyback Multiple
shares
🍌 Capital Gains Tax on Transaction
🍌Make assumption about minimum cash and link current = (Offer Enterprise Value - Book
cash, existing debt, and tax rate Value) * Capital Gains Tax Rate
🍌Calculate Nike China’s EV
🍌Take out Transaction Fees
🍌Calculate Capital Gains Tax
168
Lesson 10.3: Model Walk-Through &
Lesson 10.3: Model Walk-Through & Accretion / Dilution
○ Finish out the rest of the Three Statement Model and use calculations to run
○ This will help us better understand if it’s a smart move financially for Nike to sell its
China business
○ We will be able to compare Accretion / Dilution results across the two scenarios:
Nike buying Lululemon and Nike selling off its China Business
170
10.3 Excel Preview

End goal: Run an Accretion / Dilution Analysis on Nike selling its China Business & interpret the meaning
🍌It’s time for a test! Don’t worry, you won’t be graded...
🍌The mechanics of this model are almost identical to the mechanics of the previous detailed model -- pause
the video here (after the rest of these instructions…) and get modeling!
🍌One hint: there is one minor difference in this model that was not in the past one -- the capital gains tax
amount we calculated in the previous lesson must be linked to reflect an outflow of cash to make that tax
payment
Functions, Shortcuts, Formulas, & Formats
🍌You know all you need at this point :)
🍌If there are specific excel pieces you are confused about while going through this exercise, go back and
re-watch the lessons we covered those topics for more depth
171
Closing Thoughts
WSO M&A Modeling Course Farewell
Thanks for
Thank you & Goodluck! joining us!
🍌 Give yourself a pat on the back… you made it through the M&A Course!
🍌 A couple of closing points…
○ Please let us know feedback on the course (we’re working on Max’s LinkedIn so you can leave feedback there...)
○ Check out other WSO courses and services -- from financial modeling courses to interview prep to mentoring and
resume reviews, WSO has it all
○ We have many mentors and resume reviewers (including me!) on the platform that would love to be helpful
🍌 Parting thoughts…
○ Investment banking (and finance in general) can be a fascinating place to start a career
○ Between the skills you gain, the network you build, and the financial resources that can be made in these roles,
many doors are opened for you
○ My challenge to you is this: whatever door you choose to take, don’t only use the skills and resources you build to
help yourself -- rather, do something good for others as well
○ The skills that are needed for success in finance are the same skills needed to help make the world a better place
for everyone
○ Nobody has ever said it as well as Spiderman’s Uncle Ben: “With great power comes great responsibility”
173

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What are the course objectives?

What are the course objectives?

What are the prerequisites for taking this course?

What are the prerequisites for taking this course?

Module 1: Course Introduction

Zach Mayer • Taught and vetted by actual industry

Max ⎻ Understand the “why” behind each

Why Learn this Material?

• Core of Investment Banking Advisory

⎻Focus of many pitchbooks

• Essential modeling skills for a career in investment banking, private

• Understand how modeling fits into the larger picture of a M&A

⎻Financial Statement Modeling Course

The Who, What, Why, When, and How of M&A

• Buyers are traditionally considered “strategic” (corporations like NIKE) or “financial”

• “M&A” is a commonly used term to cover a range of transactions

How? • M&A is part art, part science – stay tuned!

Spotlight on Synergies Revenue Synergy Examples

Key Players in M&A Processes

Investment Bank 101 and Role in M&A Processes

• Advises on strategic transactions, including M&A activity, debt and

• These professionals are experts in accessing the “capital markets” to

• This group helps various asset managers execute financial trades in

Types of M&A Engagements

Buy-side Engagements Sell-side Engagements Fairness Opinions

Origin of M&A Processes

Pitchbooks: The “Storm Before the Calm”

Buyside Process Summary

Stages of a Buyside Process

1st Stage: Initial Contact and Transaction Assessment

Activity Description Key Participants

2nd Stage: Detailed Due Diligence

3rd Stage: Agreement on Price and Transaction Closing

The Deal is Closed - Congratulations!

Sellside Process Summary

Stages of a Sellside Process

1st Stage: Assessment and Process Set Up

Activity Description Key Participants

2nd Stage: Initial Buyer Contact and Gauging Interest

Activity Description Key Participants

3rd Stage: Buyer Meetings and Diligence

4th Stage: Agreement on Price and Transaction Closing

The Deal is Closed - Congratulations!

Max • Co-advised Goldman Sachs on

Housekeeping: Prerequisite WSO Courses

Housekeeping: Module & Lesson Flow

○ Review lesson - recap what we just learned & how it connects

🍌Core concept lesson format

○ Financial concepts - cover concepts we will run into in excel

○ Excel preview - preview shortcuts, functions, and formulas we use in excel

Wait, but why?

WHY approach an WHY merge with WHY sell the China

🍌 Industry experience 🍌 Exposure to higher 🍌 Unit is non-core to

Setting the Stage: What’s Included in an M&A Model?

○ Target Share Dilution & Purchase Price ○ Credit Metrics

○ Key Assumptions ○ Interest Schedule

How we gon’ get there?

🍌Module 6: Intro to M&A Section