michigan state university topics in investment banking fall 2007 deloitte & touche corporate...

Michigan State University

Topics in Investment BankingFall 2007

Deloitte & Touche Corporate Finance LLC

www.investmentbanking.deloitte.com

•

22 www.investmentbanking.deloitte.com

Agenda

I. D&TCF at a Glance

II. Recruiting Considerations

III. Case Study

I. DTCF at a Glance


Deloitte Touche TohmatsuThrough its global member firms, Deloitte Touche Tohmatsu (“DTT”) is one of the world’s leading professional services organizations, a broad-based advisory firm offering an integrated approach to leading organizations around the world.

Deloitte & Touche LLP

• Audit• Enterprise Risk

Services• M&A Transaction

Services

Deloitte Financial Advisory Services LLP

• Forensic & Dispute• Corporate Finance• Reorganization• Valuation

Deloitte Tax LLP

• Corporate Tax• International Tax• Private Client Advisory• M&A Tax Services

Deloitte Consulting LLP

• Strategy and Operations• Human Capital• Enterprise Applications• M&A Integration

Deloitte Touche Tohmatsu$20.0 billion global revenues in 2006

135,000 professionals in 140 countries

Deloitte & Touche USA LLP and its subsidiaries Greater than $8.75 billion in revenues in 2006

37,000 professionals in 90 U.S. cities

Detroit, MI

1000+ employeesDTCF headquartersAll subsidiaries are

represented


Outstanding Global ReachDTCF and the corporate finance practices of the member firms of DTT or their affiliates are able to work together to provide industry-specific experience and execution capabilities to assist in the completion of M&A advisory assignments around the globe.

* In all office locations outside the United States listed above, corporate finance services are offered by the DTT member firm of the applicable country or an affiliate thereof. DTCF works closely with these DTT member firms or their affiliates to give clients access to global investment banking coverage. Each of the DTT member firms is a separate and independent legal entity.

Canada &United States• Chicago• Detroit• Los Angeles• Montreal• New York• Toronto• Vancouver

Latin & South America• Buenos Aires• Mexico City• Santiago

Africa• Johannesburg

Australia &New Zealand• Adelaide• Auckland• Brisbane• Melbourne• Perth• Sydney

Asia• Beijing• Mumbai• Hong Kong• Seoul• Tokyo

Europe• Amsterdam• Barcelona• Brussels• Copenhagen• Dublin• Edinburgh• Frankfurt• Glasgow• Helsinki

• Lisbon• London• Madrid• Milan• Munich• Oslo• Paris• Rome• Stockholm

• Calgary• Edmonton• Quebec• SWO


DTCF Service OfferingsOur broad offering of services and our experience allows us to provide our clients with an objective perspective on the complete range of shareholder alternatives.

Sale and Divestiture

• Pre-sale due diligence

• Identify buyers• Prepare confidential

memorandum• Clear the market• Deal negotiation• Coordinate closing

Acquisition, Joint Venture and Alliance

• Define acquisition goals

• Target evaluation• Transaction

modeling• Finance assistance• Deal negotiation• Coordinate closing

DTCF Investment Banking Services

Capital Raising

• Assess alternative structures

• Create a plan• Identify appropriate

sources• Transaction

modeling• Deal negotiation• Coordinate closing

Corporate Development Advisory

• Prioritize shareholder objectives

• Enhance corporate finance capabilities

• Develop financial models and analyses

Tax Services(Deloitte & Touche Tax LLP)

(Deloitte Consulting LLP)

Consulting and Post Merger Integration Services

(Deloitte Consulting LLP)

M&A Transaction Services(Deloitte & Touche LLP)

(Deloitte Tax LLP)

Valuation Services(Deloitte Financial Advisory Services

LLP)

Investment banking products and services within the United States are offered exclusively through DTCF.


Global M&A Advisor RankingsDTCF together with the member firms of DTT and their affiliates, ranked No. 3 among firms providing investment banking services (in terms of number of deals closed) for the six months ended June 30, 2007, according to Thomson Financial.

Mid-Market Financial Advisor Rank No. of Deals Deal Value ($mm)

KPMG Corporate Finance 1 126 2,642

PricewaterhouseCoopers 2 109 3,142

Deloitte Touche Tohmatsu - Corporate Finance 3 101 2,383

Rothschild 4 74 3,427

Citi 5 72 4,455

Ernst & Young LLP 6 69 1,792

UBS 7 65 4,854

Nomura 8 65 2,889

IMAP 9 65 468

Lazard 10 61 2,668

Houlihan Lokey Howard & Zukin 11 59 2,090

Jefferies & Co Inc 12 56 2,705

Credit Suisse 13 55 3,927

JP Morgan 14 49 2,149

M&A International 15 49 663

Morgan Stanley 16 41 2,488

RBC Capital Markets 17 35 1,857

Merrill Lynch 18 34 2,866

ABN AMRO 19 34 1,116

Goldman Sachs & Co 20 33 2,256


Select DTCF Transactions

The undersigned acted as exclusive financial advisor to ThyssenKrupp Budd Company


ThyssenKrupp Stahl Companya wholly owned subsidiary of

ThyssenKrupp Budd Companyhas been acquired by

Speyside Equity LLC

The undersigned acted as exclusive financial advisor to MIRO/MCCI


Michigan Institute for

Radiation Oncologyand

Michigan Comprehensive Cancer Institute

has been acquired by

Divestiture: Private Co. Sale:

II. Recruiting Considerations


What’s Your Major?Accounting

• Audit, Tax, F&DS, Government (FBI/CIA), Financial Services

Finance• Treasury, Consulting, Investment

Banking, Financial Services Marketing

• Brand Management, Consulting, Market Research, Financial Services

Supply Chain• Engineering, Supply Chain

Management, Consulting, Government

Vault Career Library

Career Research• Guides, websites, magazines, industry publications, alumni

Key Skills• Problem Solving•Communications•Accounting•Finance


Why Join DTCF?DTCF is a unique combination of a boutique investment bank with the resources, relationships and reputation of a large global firm

DTCF is committed to diversity, personal development and work/life balance

•DTCF is a leading middle market global investment bank –Bankers see a variety of deals for highly recognizable clients

–Registered Broker Dealer•DTCF has recruited top Wall Street talent–Senior bankers come from leading bulge-bracket Wall Street firms

–Junior bankers recruited from top finance and business school programs

•Clients include small and mid-cap companies, as well as Fortune 500 firms–Leads to well-rounded M&A and financing experience

–Greater ability to “step up” earlier in your career

•Senior bankers employ an “open door” policy at all times

•Team approach and feel create a positive working environment–Small teams allow for greater responsibility and learning opportunities

•Early career focus on business development–Extensive training available through Deloitte

–C-Suite client contact expected at all levels

•Goal is to develop future senior bankers–Analysts and Senior Associates are team members, not resources

–All bankers involved in group strategy


DTCF Recruiting

Our Professionals are expected to: Requiring the Following Skills:

1. Serve middle to large public and private held businesses

1. Professional demeanor and outgoing personality

2. Create innovative solutions for clients

2. Excellent problem solving skills

3. Act as the primary coordinator and facilitator with all parties related to a transaction

3. Self-starters with solid team skills and a desire to contribute to a growing and dynamic practice

4. Analyze companies from a financial, operational and industry perspective

4. High performing business students with focus on finance & accounting

5. Interface with “C-suite” level management and business owners

5. Strong oral & written communication skills


Are we a match?

DTCF Analyst Qualifications (NY, Detroit, Chicago & LA)•Strong academic performance•BBA’s with focus on finance & accounting•Strong quantitative & strategic analysis skills•Professional demeanor and outgoing personality•Strong oral & written communication skills•Self-starters with solid team skills and a desire to contribute

to a growing and dynamic practice•Finance & investment banking experience is a plus

III. Case Study


The Case

ABC Automotive Products has selected you to advise them on the sale of their company. As analysts you have been assigned to construct the valuation analysis that will be used in the coming days to evaluate several incoming offers. The analysis is critical for the client as they will be using as the bases for which offer they will accept.

ABC is expecting to see strong supporting analysis of how you arrived at the valuation. You must provide a supporting financial model to reflect the range of value that you arrive at.

Using the attached information which includes a company snapshot, DCF analysis, public comps, and comparable transactions to determine a range of value for ABC Automotive Products.

ABC Automotive Products is a vertically integrated supplier controlling all aspects, and taking responsibility for, the design and manufacture of on-glass connection systems, including the soldering process on customer glass and the functionality in the vehicle or component assembly.

Company Snapshot


Valuation Analysis

Valuation Methodologies:

Valuation Methodologies and Related Considerations

Comparable Company Analysis

Comparable Transaction Analysis

Discounted Cash Flows Analysis

Leveraged Buyout Analysis

• Value based on comparisons with “similar” publicly traded companies

• Comparable publicly traded companies similar in business, financial structure, growth prospects, financial performance, and size

• Valuation benchmarks include multiples of:

- Revenue

- EBITDA

• Value based on comparisons with “similar” acquisition transactions

• Comparable acquisitions similar in business, industry, and financial structure

• Value includes control premium

• Valuation benchmarks include multiples of:

- Revenue

- EBITDA

• Value based on the present value of future free cash flows

• Free cash flow is defined as unlevered net income plus non-cash adjustments, less changes in working capital and capital expenditures

• Discount rate as determined by the weighted average cost of capital and financial risk

• Value based on potential purchase price in a leveraged buyout transaction

• Value constrained by credit markets, debt capacity, and equity investor return expectation


Automotive Products

Sample Interview DCF Analysis

Assumptions:EBI T Margin 25% Net Working Capital (% of sales) 10%Taxes 40% Capital Expenditures (% of sales) 5%Depreciation (% of sales) 2% Terminal Growth Rate (Free Cash Flow) 3%re = 18% WACC (r) 14%rd = 10%Calculations:Change in NWC = Current Year NWC - Previous Year NWCDiscount Factor = (1/ (1+r)^n)

Terminal Value = 2012 FCF * (1+Terminal Growth Rate)/ (r-g)

Terminal

($ in MM) 2006 2007 2008 2009 2010 2011 2012 Value

Sales 185 213 245 281 324 372 428

NWC - Ending 19 21 24 28 32 37 43

EBI T (25% of sales) 46 53

Less: Taxes (40%) -19 -21

Add: Depreciation (2% of sales) 4 4

Add: (I ncrease)/Decrease in NWC -3

Less: CapEx (5%) -11

FCF 23

Years Out (n) 0.5 1.5 2.5 3.5 4.5 5.5 5.5

Discount Factor (1/ (1+r)^n) 0.935 0.817 0.714 0.624 0.546 0.477 0.477

PV (FCF x Discount Factor) 21

NPV


Comparable Public Companies

Company NameShare Price

Market Cap

Net Debt

Enterprise Value

EV/ Sales

EV/ EBITDA

J ohnson Controls I nc. 92.46$ 18,122$ 4,450$ 22,572$ .8X 4.3XMagna I nternational, I nc. 78.12 8,572 (663) 7,909 2.2X 8.9XDenso Corp. 40.04 33,085 (797) 32,287 2.4X 9.2XSiemens AG 109.51 97,647 6,046 103,692 2.2X 6.5XValeo SA 45.54 3,490 1,339 4,829 2.3X 7.3XAisin Seiki Co. Ltd. 32.51 9,342 (123) 9,218 2.6X 9.3XSumitomo Electric I ndustries Ltd. 15.29 11,597 2,878 14,476 1.8X 8.1XPPG I ndustries I nc. 66.29 10,955 997 11,952 1.3X 6.7XAverage


Comparable Transactions

Enterprise ValueDate

Announced Acquiror TargetEnterprise

Value ($mm) Sales EBITDA

12/18/06 Kimball Electronics Group Reptron Electronics I nc $ 49.7 2.7 x 9.4 x

11/29/06 Nidec Corp Brilliant Manufacturing Ltd 134.6 1.8 x 5.2 x

11/03/06 Sensata Technologies I nc. First Technology Automotive and Special Products

914.9 2.6 x 10.6 x

08/31/06 Weichai Power Co Ltd Torch Automobile Group Co Ltd 300.0 9.3 x 28.3 x

05/23/06 Assa Abloy AB Fargo Electronics I nc 686.9 1.7 x 8.5 x

02/01/06 Emerson Electric Co. Artesyn Technologies I nc. 669.9 10.2 x 33.1 x

12/19/05 Honeywell I nternational I nc First Technology PLC 2,294.6 1.6 x 7.7 x

06/06/05 I NSSEC Cie Automotive SA 947.1 1.1 x 4.6 x

12/13/04 Honeywell I nternational I nc Novar PLC 254.7 3.0 x 9.7 x

10/25/04 Magna I nternational I nc Tesma I nternational I nc 559.5 2.7 x 11.1 x

07/07/04 Emerson Electric Co. Marconi Corporation PLC, Outside Plant and Power Systems Business

406.0 2.0 x n/a

05/12/04 Mitsuba Corp J idosha Denki Kogyo Co Ltd 90.0 2.2 x n/a

Average


2006 Sales

2006 EBITDA

Sales EBITDA Sales EBITDA

Multiple

Value

Value

Range of Value:

Min

Max

Average

Public Comps Transaction Comps

DCF

Range of Value Summary


Automotive Products

Sample Interview DCF Analysis

Assumptions:EBI T Margin 25% Net Working Capital (% of sales) 10%Taxes 40% Capital Expenditures (% of sales) 5%Depreciation (% of sales) 2% Terminal Growth Rate (of Free Cash Flow) 3%re = 18% WACC (r) 14%rd = 10%Calculations:Change in NWC = Current Year NWC - Previous Year NWCDiscount Factor = (1/ (1+r)^n)

Terminal Value = 2012 FCF * (1+Terminal Growth Rate)/ (r-g)

Terminal

($ in MM) 2006 2007 2008 2009 2010 2011 2012 Value

Sales 185 213 245 281 324 372 428

NWC - Ending 19 21 24 28 32 37 43

EBI T (25% of sales) 46 53 61 70 81 93 107

Less: Taxes (40%) -19 -21 -24 -28 -32 -37 -43

Add: Depreciation (2% of sales) 4 4 5 6 6 7 9

Add: (I ncrease)/Decrease in NWC -3 -3 -4 -4 -5 -6

Less: CapEx (5%) -11 -12 -14 -16 -19 -21

FCF 23 26 30 35 40 46 414

Years Out (n) 0.5 1.5 2.5 3.5 4.5 5.5 5.5

Discount Factor (1/ (1+r)^n) 0.935 0.817 0.714 0.624 0.546 0.477 0.477

PV (FCF x Discount Factor) 21 21 21 22 22 22 197

NPV 327$


Comparable Public Companies

Company NameShare Price

Market Cap

Net Debt

Enterprise Value

EV/ Sales

EV/ EBITDA

J ohnson Controls I nc. 92.46$ 18,122$ 4,450$ 22,572$ .8X 4.3XMagna I nternational, I nc. 78.12 8,572 (663) 7,909 2.2X 8.9XDenso Corp. 40.04 33,085 (797) 32,287 2.4X 9.2XSiemens AG 109.51 97,647 6,046 103,692 2.2X 6.5XValeo SA 45.54 3,490 1,339 4,829 2.3X 7.3XAisin Seiki Co. Ltd. 32.51 9,342 (123) 9,218 2.6X 9.3XSumitomo Electric I ndustries Ltd. 15.29 11,597 2,878 14,476 1.8X 8.1XPPG I ndustries I nc. 66.29 10,955 997 11,952 1.3X 6.7XAverage 1.9X 7.5X


Comparable Transactions

Enterprise ValueDate

Announced Acquiror TargetEnterprise

Value ($mm) Sales EBITDA

12/18/06 Kimball Electronics Group Reptron Electronics I nc $ 49.7 2.7 x 9.4 x

11/29/06 Nidec Corp Brilliant Manufacturing Ltd 134.6 1.8 x 5.2 x

11/03/06 Sensata Technologies I nc. First Technology Automotive and Special Products

914.9 2.6 x 10.6 x

08/31/06 Weichai Power Co Ltd Torch Automobile Group Co Ltd 300.0 9.3 x 28.3 x

05/23/06 Assa Abloy AB Fargo Electronics I nc 686.9 1.7 x 8.5 x

02/01/06 Emerson Electric Co. Artesyn Technologies I nc. 669.9 10.2 x 33.1 x

12/19/05 Honeywell I nternational I nc First Technology PLC 2,294.6 1.6 x 7.7 x

06/06/05 I NSSEC Cie Automotive SA 947.1 1.1 x 4.6 x

12/13/04 Honeywell I nternational I nc Novar PLC 254.7 3.0 x 9.7 x

10/25/04 Magna I nternational I nc Tesma I nternational I nc 559.5 2.7 x 11.1 x

07/07/04 Emerson Electric Co. Marconi Corporation PLC, Outside Plant and Power Systems Business

406.0 2.0 x n/a

05/12/04 Mitsuba Corp J idosha Denki Kogyo Co Ltd 90.0 2.2 x n/a

Averages $365 2.1 x 8.3 x


Range of Value Summary

2006 Sales 185$

2006 EBITDA 50$

Sales EBITDA Sales EBITDA

Multiple 1.9 7.5 2.1 8.3

Value 359.59$ 377.41$ 395.90$ 417.44$

Value

Range of Value:

Min 327$

Max 417.44$

Average 375.40$

Public Comps Transaction Comps

DCF

327$


About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 140 countries. With access to the deep intellectual capital of approximately 150,000 people worldwide, Deloitte delivers services in four professional areas — audit, tax, consulting, and financial advisory services — and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other related names.

In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the U.S. member firm’s Web site at www.deloitte.com

Deloitte & Touche Corporate Finance LLC (“DTCF”), member FINRA, is a wholly-owned subsidiary of Deloitte Financial Advisory Services LLP. Investment banking products and services within the United States are offered exclusively through DTCF.

Copyright © 2007 Deloitte Development LLC. All rights reserved.

michigan state university topics in investment banking fall 2007 deloitte & touche corporate...

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