Corporate Finance & M&A Deep Knowledge Pack

CorpFin=M&A core pillar; integrates cap struct mgmt, valn, invest dec, div strat, risk mgmt. Fundamentals: time value of money (TVM), WACC, FCFF/FCFE, cap budgeting (NPV, IRR, PI, payback). WACC=wd×rd×(1−tc)+we×re; key for DCF valn. Cap struct: trade-off theory (tax shield vs. fin distress), pecking order (int. funds→debt→eq), MM theorems (w/wo tax). Div policy: irrelevance (MM) vs. signaling, clientele effect. Valn methods: DCF, comp (trading & transaction), LBO, sum-of-parts. DCF: project UFCF, discount at WACC, calc TV (gordon grow or exit mult), PV. TV sensitive to g & WACC. Comps: select peers via indus, size, grow, marg; use EV/EBITDA, P/E, EV/Sales; adjust for growth, risk, marg. Precedent trans: control prem (hist avg 20–40%), synergy adj, deal rationale. LBO: sponsor acq co using high leverage (50–70% debt), value via IRR (target 20%+); drivers: leverage, EBITDA expand, multiple arbitrage. Model: sources & uses, debt sched, IRR calc. M&A strat: horizontal (scale), vertical (control), conglomerate (diversif); accretion/dilution model: EPS impact. Key formula: (acq net inc + target net inc + synergies − int exp − tax)/new shrs. Synergies: op (COGS, SG&A cuts), rev (cross-sell), fin (cap struct opt). Due diligence: fin (QoE, adj EBITDA), legal, tax, oper, HR. QoE: recast EBITDA (add back non-recur exp, normalizing rent, comp). Purchase acct: allocate purchase price to assets/liabs at FV, recognize goodwill (excess over BV). Goodwill impair test annu. (FASB ASC 350). Earnouts: contingent pay based on post-acq perf; align incentives, tax treatment varies. Cross-border M&A: forex risk (hedge via forw, opt), reg (CFIUS, antitrust), cultural integ. Current trends: SPACs (declining post-2021 surge), ESG integ in valn, tech-driven deals (AI, cloud), private equity dry powder (~$1.8T in 2023). Artif intel used in DD (NLP for doc rev, anomaly det). Pitfalls: overpay (winner’s curse), synergy overest (80% fail to realize), cult clash (Daimler-Chrysler), integration failure, agency issues (mgmt empire bldg). M&A adv fees: 1% on first $1M, 0.5% on next $4M, 0.2% on remainder (rev-based slippage). Leveraged loans: covenant-lite rising (80% of mkt), higher risk. Distressed M&A: 363 sale (BK Ch11), stalking horse bid, DIP financing. Real options in valn: defer, expand, abandon; esp. useful in high-uncert invest (R&D, nat res). Behavioral biases: hubris hyp (Roll), overconfidence, anchoring in bids. Post-merger integ (PMI): hardest phase; IT, HR, brand, supply chain harmonization. Carve-outs: pre-IPO or divest; complex IT/separation costs. Valn in early-stage: VC method (exit valn → stake), scorecard adj. I-bankers: role in pitch (deal origination), modeling, negotiation, closing. Key docs: LOI, SPA, TSA, CIM. Regulatory: HSR filing (US), EU merger reg, antitrust (SSNIP test). ESG factors: carbon liability in DD, green premiums in valn. Climate risk stress testing in cap budgeting. Digital twins for integration sim. Quantum comput potential: portfolio optim, risk sim, real-time valn. Expert systems: AI for contract anal, clause rec. Pitfalls cont.: tax leakage in cross-border, earnout disputes, retention risk (key talent exit). Use locked-box (valn date) vs. completion accounts (closing adj). M&A metrics: ROIC, CFROI, EVA. Activist pressure: push spin-offs, divestitures. Dual-track: run sale & IPO sim. Final warning: synergy capture requires dedicated PMO, clear KPIs, change mgmt. Culture due diligence = as critical as fin DD.