ČSOB Acquisition Finance

ČSOB Acquisition Finance

Československá obchodní banka, a. s. Prague, Kampa, March 3, 2008

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Acquisition Finance Models

Financing of Transactions

1. Direct M&A2. LBOs

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AD 1. Direct M&A Model

Elements and Characteristics:

• Direct purchase of a Target and held directly by Investor in its books;

• Investor directly bears 100% risk of potential failure and all liabilities resulting from an acquisition loan;

• This model is typical for industry (strategic) Investors;

• Bank provides the financing within the framework of the whole group;

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AD 1. Direct M&A Model

Elements and Characteristics:

• Investor may not valuate the acquisition based on a direct capital gain, but rather prefer other positive impacts;

• Positive impacts – synergy resulting in increase in sales, decrease in costs, or buying new markets;

• Bank evaluates the risk of the whole corporation;

• The financing model typically includes existing financing, acquisition financing and operational loans provided to the Target;

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AD 1. Direct M&A Model

Scheme of a direct acquisition:

Investor

Target

BankCustomers

Market

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1

3

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Explanation:

1 – bank loans

2 – payment of P. Price

3 – ownership

4 – sales

5 – loan repayments

Seller

2

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AD 2. Leveraged Buy-outs

Elements and Characteristics:

• Using an SPV;

• Financing of the purchase price is based on future CF generated by the Target;

• Investor is secluded from direct transaction and financing risks;

• Bank evaluates the risk of the Target;

• LBO is typically used by:

• Financial Investors

• Corporations already leveraged

• Intra-shareholders settlements

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AD 2. Leveraged Buy-outs

Elements and Characteristics:

• Low equity ratios = high leverage;

• Positive impacts on the tax cost and on WACC;

• Significantly reduced risk of Investor (limited to equity contribution);

• Well-proven, and well-developed transaction structuring;

• Tested according to the LMA standards;

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AD 2. Leveraged Buy-outs

Scheme of LBO:

Investor (Buyer)

Seller SPV

Target

Bank

Explanation

1 – forming SPV and equity

2 – bank loan

3 – payment of Purch. Price

4 – ownership

5 – loan repayments

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2

3

4

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Post Merger

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Acquisition Finance Models

Financing of Transactions

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Financing of Transactions

M&A LBO

• Corporate risk

• Capital gain is often indirect (purchase of market, synergy effects)

• Financed typically via several tranches, combining LT amortized and ST bullet term loans, bonds, and operating overdrafts, etc.

• The security includes assets of Investor inclusive the acquired shares

•Repayments are generated by the operations of the Investor corporation

• Corporate reputation of Investor

• Equity contribution in cash approximately 30% of the transaction

• Borrower is to be restructured via a merger (upside) enabling the access to the asset collateral and C/F for repayment

• The security includes the acquired shares and assets of the target post merger

• Repayments are generated by the future C/F of the Target post merger

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Financing of Transactions

M&A LBO

• Pricing is derived from the corporate rating of Investor

• The advantages for Investor:

• Lower tax cost

• No Investor´s liability

• Leverage providing better IRR

Are compensated by higher price rewarding bank for increased risk

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Contact

Dalibor Jeřábek Acquisition Finance

phone +420 224 114 391

mob. +420 603 151 561

e-mail [email protected]