An Introduction to Corporate Finance

An Introduction to Corporate Finance provides the reader with a complete overview of Corporate Finance from perspective of the investment Banker. The author, a corporate trainer and former investment banker clarifies the role of the investment banker in numerous corporate finance transactions, including mergers & acquisitions, IPO's, and valuation. Given today's corporate climate, every student studying corporate finance and those working in the field need this book to sharpen their skill set.

About the author xv 1 ‘BEHIND THE CHINESE WALL’ 1 Corporate finance in investment banking 2 Chinese walls 3 Corporate finance assignments 5 Flotations/IPOs 6 Mergers, acquisitions and divestitures 8 Leveraged buyouts and management buyouts 13 Financial advice 13 Careers in corporate finance 15 Organisation of this book 20 Part I CORPORATE FINANCE TRANSACTIONS 23 2 SOURCES OF CAPITAL 25 Debt securities 27 Money market securities 27 Long-term debt 29 Floating rate notes 31 Equity 32 Preference shares 32 Ordinary shares 34 Hybrids (convertible securities) 36 3 FLOTATIONS/INITIAL PUBLIC OFFERINGS 39 Primary offerings 40 Ancillary benefits of flotation 46 Disadvantages of flotation 46 Methods of flotation 47 Suitability for listing 49 The offering process 52 Participants and roles 52 Documentation and regulation 55 Due diligence and verification 57 Marketing, syndication and pricing 59 Underwriting 62 4 INTERNATIONAL EQUITY OFFERINGS 65 Rationale for international offerings 66 International investors 68 Development of international equity offerings 69 Regulation and documentation 70 Depository receipts 73 Marketing, syndication and distribution 75 Offer structure 76 Price setting, underwriting and bookbuilding 77 Fees and commissions 79 After the new issue 81 Stabilisation 81 5 RIGHTS ISSUES/SECONDARY OFFERINGS 83 Pre-emption rights 85 Setting the price 87 Calculating the theoretical rights price 88 Rights issue timetable 90 Fees and commissions 90 Secondary offerings 94 Marketed offerings 95 Bought deals 96 Accelerated bookbuilding 98 Demergers 100 6 MERGERS AND ACQUISITIONS 101 Rationale for M&A 102 Types of merger 104 Merger waves 106 Financing the transaction 107 Bootstrap transactions 109 Regulation of M&As 110 Key elements of the City Code 111 7 MANAGEMENT BUYOUTS 115 Financial structure 118 Bank finance (secured lending) 120 Private equity funds 122 Mezzanine finance 123 High-yield bonds 124 Part II CORPORATE FINANCE TECHNIQUES 127 8 VALUING SECURITIES 129 Valuing bonds 130 Valuing shares and companies 132 Cash flow based valuations 135 Determination of terminal/residual value 139 Determining the discount rate 143 Determining the value of the business 143 Relative valuations 146 Price earnings ratio 148 Price/EBIT multiple 149 Market to book value 149 Dividend yield 150 Enterprise value to EBITDA 151 Determining the value of a business based on ratios/multiples 152 9 DETERMINING THE COST OF CAPITAL 159 Weighted average cost of capital 160 Use market values 161 Use target/optimal weighting 162 After tax 163 Match nominal rates with nominal cash flows 163 Cost of debt: Kd 165 Cost of equity: Ke 166 Capital asset pricing model 168 Risk-free rate 170 Market risk premium (equity risk premium) 170 Beta (β) 171 Health warning 172 10 SHAREHOLDER VALUE ADDED (ECONOMIC PROFIT) 173 Just another number? 174 Benefits of SVA 175 Calculation of SVA 177 Limitations of economic profit calculations 181 Appendix: UK CORPORATE VALUATION METHODS: A SURVEY 183 Scoring and tables 184 A.1 Valuation methodology 185 A.1.1 Frequency of use 186 A.1.2 Calculation of final valuation or value range 188 A.2 Discounted cash flows 189 A.2.1 DCF approaches 189 A.2.2 Forecast period 190 A.2.3 Terminal value 191 A.3 Cost of capital 192 A.3.1 Determining the cost of equity 192 A.3.2 Capital asset pricing model 193 Sources of information 197 Glossary 199 List of abbreviations 211 Additional reading 213 Index 215