Mergers, Acquisitions, Divestitures, and Other Restructurings: A Practical Guide to Investment Banking and Private Equity

369 Pages·2015·3.32 MB·English

by  Paul Pignataro

Mergers, Acquisitions,
Divestitures,
and Other
Restructurings
Founded in 1807, John Wiley & Sons is the oldest independent publishing
companyintheUnitedStates.WithofficesinNorthAmerica,Europe,Aus-
tralia and Asia, Wiley is globally committed to developing and marketing
print and electronic products and services for our customers’ professional
andpersonalknowledgeandunderstanding.
TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance
and investment professionals as well as sophisticated individual investors
andtheirfinancialadvisors.Booktopicsrangefromportfoliomanagement
toe-commerce,riskmanagement,financialengineering,valuationandfinan-
cialinstrumentanalysis,aswellasmuchmore.
Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com.
Mergers, Acquisitions,
Divestitures,
and Other
Restructurings
A Practical Guide to Investment
Banking and Private Equity
PAUL PIGNATARO
Coverimage:Wiley
Coverdesign:©iStockphoto.com/powerofforever
Copyright©2015byPaulPignataro.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin
anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or
otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright
Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough
paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222
RosewoodDrive,Danvers,MA01923,[phone],fax[phone],orontheWeb
atwww.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe
PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030,
[phone],fax[phone],oronlineat www.wiley.com/go/permissions.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbest
effortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespecttothe
accuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied
warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated
orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies
containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwitha
professionalwhereappropriate.Neitherthepublishernorauthorshallbeliableforanyloss
ofprofitoranyothercommercialdamages,includingbutnotlimitedtospecial,incidental,
consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please
contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside
theUnitedStatesat(317)572-3993orfax(317)572-4002.
Wileypublishesinavarietyofprintandelectronicformatsandbyprint-on-demand.Some
materialincludedwithstandardprintversionsofthisbookmaynotbeincludedine-booksor
inprint-on-demand.IfthisbookreferstomediasuchasaCDorDVDthatisnotincludedin
theversionyoupurchased,youmaydownloadthismaterialathttp://booksupport.wiley.com.
FormoreinformationaboutWileyproducts,visitwww.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Pignataro,Paul.
Mergers,acquisitions,divestitures,andotherrestructurings:apracticalguideto
investmentbankingandprivateequity/PaulPignataro.
pagescm.—(Wileyfinanceseries)
Includesindex.
ISBN978-1-118-90871-6(cloth/website);ISBN978-1-118-90867-9(ebk);
ISBN978-1-118-90869-3(ebk)
1. Consolidationandmergerofcorporations. 2. Leveragedbuyouts. 3. Investment
banking. 4. Privateequity. I.Title.
HG4028.M4P552015
338.8′3–dc23
2014030319
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
This book is dedicated to every investor pursuing
enhanced wealth—those who have gained and those
who have lost. This continuous struggle has
confounded the minds of many. This book is one
small tool to help further said endeavor,
and if successful, will be the seed planted to spawn a
future of more informed investors and smarter
markets.

Contents
Preface xi
PARTONE
Introduction 1
CHAPTER1
MergerandAcquisitionsOverview 3
TheM&AProcess 5
OfficeDepotandOfficeMax 7
CHAPTER2
FinancialStatementsRefresher 13
TheIncomeStatement 13
TheCashFlowStatement 22
TheBalanceSheet 27
Depreciation 32
WorkingCapital 42
DebtSchedule 44
FinancialStatementFlowsExample 45
PARTTWO
M&AAnalyses 53
CHAPTER3
RaisingDebtandEquity 55
RaisingDebt 55
RaisingEquity 60
vii
viii CONTENTS
CHAPTER4
AssetAcquisitionsandAssetDivestitures 71
AssetAcquisitions 72
AssetDivestitures 83
CHAPTER5
Accretion/DilutionAnalysis 87
Step1:ObtainingaPurchasePrice 88
Step2:EstimatingSourcesandUsesofFunds 89
Step3:CreatingaPro-FormaAnalysis 94
Summary 105
Drivers 106
PARTTHREE
OfficeDepot/OfficeMaxMerger 109
CHAPTER6
Assumptions 111
UsesofFunds 119
SourcesofFunds 122
CHAPTER7
IncomeStatement 129
Pro-FormaIncomeStatement 130
CHAPTER8
CashFlowStatement 171
CashFlowfromOperatingActivities 171
CHAPTER9
BalanceSheetAdjustments 191
TheBuyerIsPayingFor 191
TheBuyerIsReceiving 192
AdditionalAdjustments 192
OfficeDepotandOfficeMaxBalanceSheetAdjustments 198