Applied International Corporate Finance

536 Pages·2011·5.808 MB·English

by  Dietmar Ernst, Joachim Häcker

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Content: 

The authors present all core aspects of Corporate Finance: M&A, Pri‐
vate Equity, Acquisition Financing, IPO, and Going Private. Further‐
more, the techniques Due Diligence and Valuation are scrutinised. 
The book includes various case studies, which help to get a practical 
understanding  and  apply  the  techniques  in  the  user´s  day‐to‐day 
business. Investment bankers, lawyers, accountants, experts working 
in strategic departments, consultants, shareholders, management pro‐
fessionals, professors, and students seeking in‐depth knowledge of 
Corporate Finance will profit from the book`s practice oriented ap‐
proach. 

Additional information can be downloaded at www.vahlen.de. The 
information supplement includes 

‐ for students: samples of final written examinations 
‐ for professors: Excel solutions for the final written examinations 
as well as a course syllabus 
‐ for  business  professionals:  a  fully  integrated  Excel  valuation 
model covering all spreadsheets analyzed in the valuation section 
of this book 

“The authors…have created a theoretically well founded guide ex‐
plaining the increasingly complex world of international corporate fi‐
nance.” 
Prof. Dr. Herbert Henzler, Chairman of the Advisory Board of Credit Suisse 
Germany and former European Chairman of McKinsey & Company 

“This book points out wide variety of business opportunities for ac‐
countants in the corporate finance arena.” 
Dr. Herbert Müller, Ernst & Young AG, CEO 

“The book provides an excellent practical overview of the economics 
and the legal framework applicable to capital markets transactions in 
Germany, the UK and the US.“ 
Dr.  Sophie  Moeder,  LL.M.,  Attorney‐at‐Law  (New  York),  Sullivan  & 
Cromwell 

LLP, Senior Associate 

The authors: 

Dr. Dr. Dietmar Ernst is Professor for International Finance at Nürtin‐
gen University (Germany) and Director of the German Institute of 
Corporate Finance. 
Dr. Dr. Joachim Häcker is Professor for Finance at Munich University, 
the University of Louisville (USA), as well as Director of the German 
Institute of Corporate Finance.
Applied International
Corporate Finance
von
Prof. Dr. Dr. Dietmar Ernst
und
Prof. Dr. Dr. Joachim Häcker
2.,komplettüberarbeiteteund
erweiterteAuflage
Verlag Franz Vahlen München
ISBN 978 3 8006 4463 6 

© 2012 Verlag Franz Vahlen GmbH, Wilhelmstraße 9, 
80801 München 
Satz: ottomedien, Birkenweg 12, 64295 Darmstadt 
eBook‐Produktion: hgv publishing services 

Dieser Titel ist auch als Printausgabe beim 
Verlag und im Buchhandel erhältlich.
Endorsements
“The authors, both seasoned professionals in the field of corporate finance, have
created a theoretically well founded guide explaining the increasingly complex
worldofinternationalcorporatefinance.”
Prof.Dr.HerbertHenzler,ChairmanoftheAdvisoryBoardofCreditSuisseGer-
manyandformerEuropeanChairmanofMcKinsey&Company
“Thisbookpointsoutwidevarietyofbusinessopportunitiesforaccountantsinthe
corporatefinancearena.”
Dr.HerbertMüller,Ernst&YoungAG,CEO
“This book is an excellent guideline for core corporate finance activities such as
M&A, IPO, going private, private equity and acquisition financing. Written by
formerinvestmentbankersforcorporatefinanceprofessionals.”
Prof.Dr.FrankRichter,UniversityofUlmandformerExecutiveDirectorGold-
manSachs
“Thisbookcombinessoundacademicanalysiswithapractical,business-orientated
approach. Interesting case studies help implementing the latest teaching require-
ments and will be of great use for lecturing at universities in Germany as well as
abroad.”
Prof.Dr.Dr.h.c.JochenDrukarczyk,UniversityofRegensburg
“This book draws on business practice to depict realistic case studies that enable
professionals to understand process-orientated valuation models – a core element
oftheCertifiedFinancialModeler©(CFM).”
Dr.ChristianOssig,RoyalBankofScotland,HeadFI&PublicSectorGermany
&Austria
“HäckerandErnstcreatedamilestoneincorporatefinanceliterature.”
JensDiehlmann,IBM,Executive
“Thebookprovidesanexcellentpracticaloverviewoftheeconomicsandthelegal
frameworkapplicabletocapitalmarketstransactionsinGermany,theUKandthe
US.“
Dr.SophieMoeder,LL.M.,Attorney-at-Law(NewYork),Sullivan&Cromwell
LLP,SeniorAssociate
VII
Preface
The Bologna process marked a paradigm shift in the German university environ-
ment.TheGermandiplomasystemhasbeenreplacedbybachelorandmasterde-
grees.Mostmasterprogramareaimedataninternationalaudience,whichsuggests
thatthecoursesarebeinglecturedinEnglish.Inbusinessadministration,andespe-
ciallyinfinance-orientedmasterclasses,Englishwilldominateasthemainlanguage
atGermanuniversitiesinafewyears.Therearecurrentlyfewinternationalfinance
textbooks that are written in English but geared toward the German-speaking fi-
nancialmarket.Thisbookclosesthisgapbygivingstudentsandlecturerstheneces-
sarytoolkitforadaptationtotheBolognaprocess.
The authors’ interdisciplinary approach scrutinizes issues in finance, mathematics
andlawwiththelatestinternationalfinancetools.Thebook“AppliedInternational
CorporateFinance”alsocoversratheryoungdisciplinesinGermany,forexample
goingprivateandacquisitionfinancing.
We are convinced that books on international finance should be practice-oriented
and also help experts in the field to cope with this challenging and complex mat-
ter.Duetothefactthatwearestillactiveintheinternationalfinancearena,wesee
thenecessitytodemonstratefinancialmodelsbasedoncasestudieswhichimparta
practicalunderstandingofrelevantinternationalfinanceissues.
Wehopethatyouwillenjoyourbook„AppliedInternationalCorporateFinance“
and appreciate the interdisciplinary philosophy that combines a sound academic
frameworkwithreal-worldbusinesspracticesandinternationalperspectives.
JoachimHäcker DietmarErnst
Frankfurt,June5,2011 Frankfurt,June5,2011
Kolumnentitel IX
Authors
Dateofbirth:April17,1968,inLudwigsburg
Education: Eberhard Karls-University, Tübingen. Degree in
InternationalEconomics
Doctoral studies: Economics at the Eberhard Karls-Univer-
sity,Tübingen(1996)andNaturalSciencesattheUniversity
ofStuttgart(1999)
Professorship:ProfessorinCorporateFinanceandDirectorof
themasterprogram“InternationalFinance”attheEuropean
SchoolofFinance(ESF)inNürtingen
Transaction experience: Through his work as a project leader in Mergers &
AcquisitionsattheLandesbankBaden-Württembergandasaninvestmentbanker
with Süd Private Equity, Mr. Ernst advised various companies in the consumma-
tionofthecorporatefinanceprocess.TogetherwithJoachimHäckerhecarriesout
large-capcorporatefinancetransactions.
DICF:Mr.ErnstisDirectoroftheGermanInstituteofCorporateFinance(www.
dicf.de), which offers the corporate finance-based “Certified Financial Modeler©
(CFM)(www.certified-financial-modeler.com)
Dateofbirth:September19,1968,inStuttgart
Education:EberhardKarls-University,Tübingen.Degreesin
Business and Law as well as participation in the MBA pro-
gramoftheKenan-FlaglerBusinessSchool(USA)
Doctoral studies: In the areas of Business (1995) and Law
(1998)attheUniversityofTübingen
Professorship: Professor in International Finance at Munich
Universitysince2010andattheUniversityofLouisvillesince
2004
Transactionexperience:AsVicePresidentofRothschildinLondonandFrankfurt,
Mr. Häcker led numerous corporate finance transactions. Mr. Häcker also brings
experience from his time as an associate with Sal. Oppenheim and as an analyst
with PricewaterhouseCoopers. Together with Dietmar Ernst he carries out large-
capCorporateFinancetransactions.
DICF: Joachim Häcker is Director of the German Institute of Corporate Finance
(www.dicf.de) which offers the Corporate Finance-based “Certified Financial
Modeler©(CFM)(www.certified-financial-modeler.com)
Content
Endorsements...................................................... V
Preface ........................................................... VII
Authors........................................................... IX
Part1:Mergers&Acquisitions(M&A)
Chapter1:WhyMergers&Acquisitions?
1.1 TheTerm“Mergers&Acquisitions”............................ 1
1.1.1 Mergers.................................................... 2
1.1.2 Acquisitions ................................................ 6
1.1.3 M&Aandbusinessalliances................................... 6
1.1.3.1 Formsofbusinessalliances.................................... 6
1.1.3.2 M&Aversusbusinessalliances................................. 9
1.2 ReasonsforandsuccessfactorsofM&A ........................ 10
1.3 M&Aoflistedcompanies .................................... 13
1.3.1 Challengesforlistedcompanies ............................... 13
1.3.1.1 Increasedpublicperception ................................... 13
1.3.1.2 Shareholderstructure ........................................ 14
1.3.1.3 Thetargetcompany’ssharepriceasanuncertaintyfactor .......... 14
1.3.1.4 Thebiddercompany’ssharepriceasanuncertaintyfactor ......... 15
1.3.2 Legalcharacteristics ......................................... 16
1.3.2.1 Theregulationsof§93AktG ................................. 16
1.3.2.2 Theregulationsof§15WpÜG ................................ 16
1.3.2.3 Theregulationsof§21WpHG ................................ 16
1.3.3 Takeoverregulations ......................................... 16
1.3.3.1 Overviewofthe“Wertpapiererwerbs-undÜbernahmegesetz”
(WpÜG)(SecurityPurchaseandTakeoverAct) .................. 17
1.3.3.2 ThebidprocessaccordingtotheWpÜG........................ 18
1.3.3.3 Squeezeout ................................................ 20
1.4 TheprocessofM&A ........................................ 21
Chapter2:InitialPhase(Phase1)
2.1 Pitch ...................................................... 23
2.2 Choiceofprocess............................................ 25
2.2.1 Thediscreteapproach ........................................ 25
2.2.2 Simultaneousbilateralnegotiations ............................. 25
2.2.3 Controlledcompetitiveauction ................................ 25
2.2.4 Fullpublicauction........................................... 25
2.3 Candidatescreeningandselection.............................. 27
2.3.1 MBOorMBI............................................... 28
XII Content
2.3.2 Financialinvestors........................................... 29
2.3.3 Strategicinvestors ........................................... 30
2.4 Advisers ................................................... 32
2.4.1 Investmentbanks............................................ 32
2.4.2 Accountantsandtaxadvisers .................................. 33
2.4.3 Lawyers.................................................... 34
2.4.4 Otheradvisers .............................................. 34
2.5 Mandateletter............................................... 36
2.6 Confidentialityagreement .................................... 42
Chapter3:ContactingInterestedParties(Phase2)
3.1 Documentation ............................................. 46
3.1.1 Anonymousshortprofile ..................................... 46
3.1.2 Informationmemorandum.................................... 46
3.2 Non-bindingoffer........................................... 47
Chapter4:FinancialAspectsinanM&ASalesProcess(Phase3)
4.1 Duediligence ............................................... 53
4.2 Valuation................................................... 53
4.3 Structuring ................................................. 53
Chapter5:LegalAspectsinanM&ASalesProcess(Phase4)
5.1 Negotiations ............................................... 57
5.2 Bindingoffer ............................................... 60
5.3 Purchaseagreementandclosing ............................... 60
5.3.1 Purchaseagreement.......................................... 60
5.3.2 Closing .................................................... 62
Part2:PrivateEquity
Chapter1:WhatisPrivateEquityallabout?
1.1 Definitions ................................................. 65
1.2 Typesofinvestmentfinancing ................................. 70
1.2.1 Earlystagefinancings(venturecapitalfinancings) ................ 71
1.2.1.1 Seedfinancing .............................................. 71
1.2.1.2 Start-upfinancing ........................................... 71
1.2.1.3 First-stagefinancing ......................................... 71
1.2.2 Later-stagefinancings(privateequityfinancings) ................. 72
1.2.2.1 Second-stagefinancing ....................................... 72
1.2.2.2 Third-stagefinancing ........................................ 73
1.2.2.3 Fourth-stagefinancing ....................................... 73
1.3 Occasionsforprivateequityfinancing .......................... 75
1.3.1 Expansion(developmentcapital)............................... 75
1.3.2 Bridgefinancing ............................................ 75
1.3.3 Public-to-private(goingprivate) ............................... 76
Content XIII
1.3.4 Successionplanninganddisplacementofexistingshareholders ..... 76
1.3.5 Spin-off.................................................... 77
1.3.6 Privateplacement ........................................... 77
1.3.7 Turnaround ................................................ 78
1.3.8 Platformstrategyorbuyandbuildstrategy ..................... 78
1.4 Typesofinvestments......................................... 80
1.4.1 Openinvestments ........................................... 80
1.4.2 Indirectinvestments ......................................... 81
Chapter2:WhodrivesPrivateEquity?
2.1 Biddergroupsforequitycapital ............................... 83
2.1.1 Captivefunds............................................... 83
2.1.2 Publicfunds ................................................ 83
2.1.3 Independentfunds .......................................... 83
2.2 Theroleofbanksintheprivateequitybusiness .................. 84
2.3 Investorsinprivateequitycapital .............................. 86
2.3.1 Newfundsraisedaccordingtocapitalsources ................... 86
2.3.2 GeographicaldistributioninGermany.......................... 87
2.3.3 Newfundsraisedaccordingtofinancingphases .................. 88
2.3.4 Sectoraldistributionofinvestment ............................. 88
Chapter3:HowarePrivateEquityfirmsorganized?
3.1 Organizationalaspects ....................................... 90
3.1.1 Structureofprivateequitycompanies .......................... 90
3.1.1.1 Separationoffundandmanagement ............................ 90
3.1.1.2 Subsidiaries ................................................ 91
3.1.2 Management,controlandadvisoryorgans....................... 91
3.1.3 Innerorganization........................................... 92
3.2 Theinvestmentcontract ...................................... 94
3.2.1 Basictypesandsignificantpartsofthecontract .................. 94
3.2.2 Examplesofwordingsforcertainclauses........................ 96
3.2.2.1 Options ................................................... 96
3.2.2.2 Pre-emptiveright,rightoffirstrefusal,dutytosupplyinformation
onoffer .................................................... 96
3.2.2.3 Take-alongrightsofmanagers ................................. 97
3.2.2.4 Drag-alongrights ........................................... 98
3.2.2.5 Exit/Liquidationproceedspreference........................... 98
3.2.2.6 Antidilutionclause .......................................... 99
3.2.2.7 Concentrationofcorporateactivities ........................... 99
3.2.2.8 Prohibitionofcompetitionandsolicitationforseller .............. 99
3.2.2.9 Provisionsregardingexit ..................................... 100
3.2.2.10Listoftransactionsrequiringconsent........................... 100
3.2.2.11Reportingduties............................................. 101
3.2.3 Adoptionofexistingcontracts,importantsidecontractsandcovenants 101
3.2.4 Combinedinvestmentcontracts ............................... 102
3.2.5 Participationinadvisoryandcontrolorgans ..................... 103