Leveraged Buyouts, + Website

PAUL PIGNATARO is the founder and CEO of the New York School of Finance (NYSF). He has over thirteen years of experience in investment banking and private equity in business mergers, acquisitions, restructurings, asset divestitures, asset acquisitions, and debt and equity transactions covering the oil, gas, power and utility, Internet and technology, real estate, defense, travel, banking, and service industries. Mr. Pignataro continues to participate on the training team, actively providing training at bulge bracket banks and M&A teams at corporations, and billion-dollar funds. Prior to his entrepreneurial endeavors, Mr. Pignataro worked at TH Lee Putnam Ventures, a $1 billion private equity firm affiliated with buyout giant Thomas H. Lee Partners. Prior to TH Lee, Mr. Pignataro worked in the investment banking department of Morgan Stanley.

• Preface xiThe Heinz Case Study xiiHow This Book Is Structured xiiiPart One Leveraged Buyout Overview 1Chapter 1 Leveraged Buyout Theory 3Cash Availability, Interest, and Debt Pay-Down 3Operation Improvements 4Multiple Expansion 4What Makes Good Leveraged Buyout? 4Exit Opportunities 5Is Heinz a Leveraged Buyout? 5Chapter 2 What Is Value? 7Book Value 7Market Value 7Enterprise Value 8Multiples 12Three Core Methods of Valuation 14Chapter 3 Leveraged Buyout Analysis 19Purchase Price 19Sources and Uses of Funds 22IRR Analysis 33Part Two Leveraged Buyout Full-Scale Model 49Chapter 4 Assumptions 51Purchase Price 57Sources of Funds 63Uses of Funds 69Chapter 5 The Income Statement 75Revenue 76Cost of Goods Sold 76Operating Expenses 77Other Income 78Depreciation and Amortization 80Interest 80Taxes 81Nonrecurring and Extraordinary Items 82Distributions 82Shares 83Heinz Income Statement 84Last Twelve Months (LTM) 108Income Statement—Projections 116Chapter 6 The Cash Flow Statement 133Cash Flow from Operating Activities 133Cash Flow from Investing Activities 137Cash Flow from Financing Activities 137Financial Statement Flows Example 138Heinz Cash Flow Statement 144Heinz Last Twelve Months (LTM) Cash Flow 154Cash Flow Statement Projections 160Chapter 7 The Balance Sheet 179Assets 179Liabilities 182Heinz Balance Sheet 184Chapter 8 Balance Sheet Adjustments 199Goodwill 200Heinz Balance Sheet Adjustments 208Chapter 9 Depreciation Schedule 221Straight-Line Depreciation 222Accelerated Depreciation 222Deferred Taxes 227Projecting Depreciation 231Projecting Amortization 241Projecting Deferred Taxes 244Chapter 10 Working Capital 247Asset 247Liability 247Operating Working Capital 248Heinz’s Operating Working Capital 251Projecting Operating Working Capital 262Operating Working Capital and the Cash Flow Statement 271Chapter 11 Balance Sheet Projections 279Cash Flow Drives Balance Sheet versus BalanceSheet Drives Cash Flow 283Balancing an Unbalanced Balance Sheet 301Chapter 12 Debt Schedule and Circular References 309Debt Schedule Structure 309Modeling the Debt Schedule 310Circular References 329Automatic Debt Pay-Downs 337Basic Switches 339Finalizing the Model 339Chapter 13 Leveraged Buyout Returns 351Exit Value 351Returns to 3G Capital 355Multiple Expansion 361Debt Pay-Down 364Conclusion 364Part Three Advanced Leveraged Buyout Techniques 365Chapter 14 Accelerated Depreciation 367MACRS 367Accelerated versus Straight-Line Depreciation 372Chapter 15 Preferred Securities, Dividends, and Returns to Berkshire Hathaway 377Preferred Securities 377Preferred Dividends 378Returns to Berkshire Hathaway 388Chapter 16 Debt Covenant Ratios, and Debt Fee Amortization 395Coverage Ratios 395Leverage Ratios 397Debt Fee Capitalization and Amortization 399Chapter 17 Paid-in-Kind Securities 409ApendixesAppendix 1: Model Quick Steps 417Appendix 2: Financial Statement Flows 419Income Statement to Cash Flow 419Cash Flow to Balance Sheet 420Appendix 3: Excel Hot Keys 421About the Companion Website 423About the Author 425Index 427

“Pignataro’s step-by-step approach is ideal for anyone trying to learn or hone the analytical skills necessary to model the basic viability of an LBO, from the point of view of the company as well as the investor. He explains valuational concepts and how to capture them in Excel spreadsheets, the latter described down to the level of individual keystrokes…. Leveraged Buyouts is a self-contained course in rudimentary financial modeling (and a crash course in Excel as well). It’s a perfect read for anyone wanting to enter the world of investment banking or private equity.”—Investing.com