0
Investment Banking   University of Colorado Rob Kaufman November 3, 2004
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
RWK Bio <ul><li>Rob Kaufman </li></ul><ul><li>BA in Economics, Yale University (1981-85) </li></ul><ul><li>International C...
<ul><li>Sales/Trading </li></ul><ul><li>Public company research </li></ul><ul><li>Stock brokers </li></ul><ul><li>Retail/i...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
An attempt to define the expected return which corresponds to investments at various levels of risk. Perspectives on marke...
<ul><li>The Risk/Reward Frontier </li></ul><ul><li>Required Rates of Return </li></ul><ul><li>Developing an appropriate di...
An attempt to define the expected return which to corresponds investments at various levels of risk Risk/Reward Frontier L...
Low RISK High U.S. T-Bills  Seed-Stage VC Risk/Reward Frontier An attempt to define the expected return which to correspon...
Seed Stage Venture Capital Start-up Venture Capital Early Stage Venture Capital Private Equity Mezzanine Debt “ Junk” Bond...
Expected Annual Returns 50%+ 40-50% 35-45% 25-35% 18-25% 14-20% 8-12% 14-18% 10-14% 4-5 %  Seed Stage Venture Capital Star...
Risk Return <ul><li>Venture Capital </li></ul><ul><li>U.S. T-Bills </li></ul><ul><li>Large Cap Equities </li></ul><ul><li>...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
Valuation perspective <ul><li>Why is valuation important? </li></ul><ul><li>Fundamental to all boutique investment banking...
<ul><li>Methodologies </li></ul><ul><li>Public Comparable Analysis </li></ul><ul><li>Control Transactions </li></ul><ul><l...
Public Comparable Analysis <ul><li>Select publicly-traded comparable companies  </li></ul><ul><li>Analyze financial and op...
Control Transactions <ul><li>Collect historical transactions in SIC Codes </li></ul><ul><li>Compute financial performance ...
Discounted Cash Flow Analysis <ul><li>Develop financial model with aid of management </li></ul><ul><li>Projected after-tax...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
Case study:  .com valuation Valuations gone haywire:  1998-2000 Case Study:  netLibrary, Inc.
Case study:  netLibrary, Inc. <ul><li>The netLibrary Story </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><l...
<ul><li>The netLibrary Story </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><li>Raised $120+ million </li></...
<ul><li>Founding </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><li>Create an ASP model for reference conten...
<ul><li>Growth </li></ul><ul><li>Bring on CFO in February 1999 </li></ul><ul><li>Raising venture funds </li></ul><ul><ul><...
<ul><li>Funding </li></ul><ul><li>Venture funding </li></ul><ul><ul><li>Series A, $5 million at $5 million premoney </li><...
<ul><li>Restructuring </li></ul><ul><li>Headcount reduction </li></ul><ul><li>Focus on customers/publishers and not invest...
<ul><li>Lessons Learned </li></ul><ul><li>Running the business </li></ul><ul><ul><li>Meet customer needs, not investor/buy...
<ul><li>netLibrary Epilogue </li></ul><ul><li>Investor conflict </li></ul><ul><ul><li>Series A/B aligned against Series C/...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
<ul><li>Sale/Merger Characteristics </li></ul><ul><li>Must possess strategic/financial value to buyer </li></ul><ul><li>Es...
<ul><li>Advantages </li></ul><ul><li>Value could be the highest of alternatives </li></ul><ul><li>Greatest liquidity of Al...
Case study:  Gates Rubber Company <ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts w...
Case study:  Gates Rubber Company <ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts w...
<ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts with revenues of over $1.5 billion ...
Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>...
Investment Banking   University of Colorado Rob Kaufman November 3, 2004
Upcoming SlideShare
Loading in...5
×

CU_11-03-04.revppt.ppt

441

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
441
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • 100
  • Transcript of "CU_11-03-04.revppt.ppt"

    1. 1. Investment Banking University of Colorado Rob Kaufman November 3, 2004
    2. 2. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    3. 3. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    4. 4. RWK Bio <ul><li>Rob Kaufman </li></ul><ul><li>BA in Economics, Yale University (1981-85) </li></ul><ul><li>International Capital Markets, Goldman Sachs (85-89) </li></ul><ul><li>MBA in finance, Harvard Business School (1989-91) </li></ul><ul><li>Partner, Sierra International Partners (1991-1995) </li></ul><ul><li>Partner, The Wallach Company (1995-1999) </li></ul><ul><li>CFO and CEO, netLibrary, Inc. (1999-2002) </li></ul><ul><li>Partner, Q Advisors LLC (2002-present) </li></ul>
    5. 5. <ul><li>Sales/Trading </li></ul><ul><li>Public company research </li></ul><ul><li>Stock brokers </li></ul><ul><li>Retail/institutional sales coverage </li></ul><ul><li>Corp. Finance </li></ul><ul><li>Corporate and municipal issuance of equity/debt </li></ul><ul><li>Capital markets </li></ul><ul><li>Investment Banking </li></ul><ul><li>Private placements </li></ul><ul><li>Mergers and acquisitions </li></ul><ul><li>LBOs, MBOs </li></ul>Hybrid Securities Overview of the I-Banking Industry
    6. 6. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    7. 7. An attempt to define the expected return which corresponds to investments at various levels of risk. Perspectives on market risk
    8. 8. <ul><li>The Risk/Reward Frontier </li></ul><ul><li>Required Rates of Return </li></ul><ul><li>Developing an appropriate discount rate for an investment decision </li></ul>Risk/Reward Relationship
    9. 9. An attempt to define the expected return which to corresponds investments at various levels of risk Risk/Reward Frontier Low RISK U.S. T-Bills
    10. 10. Low RISK High U.S. T-Bills Seed-Stage VC Risk/Reward Frontier An attempt to define the expected return which to corresponds investments at various levels of risk
    11. 11. Seed Stage Venture Capital Start-up Venture Capital Early Stage Venture Capital Private Equity Mezzanine Debt “ Junk” Bonds Senior Debt Small Capitalization Equities Large Capitalization Equities U.S. T-Bills High RISK Low Risk/Reward Frontier
    12. 12. Expected Annual Returns 50%+ 40-50% 35-45% 25-35% 18-25% 14-20% 8-12% 14-18% 10-14% 4-5 % Seed Stage Venture Capital Start-up Venture Capital Early Stage Venture Capital Private Equity Mezzanine Debt “ Junk” Bonds Senior Debt Small Capitalization Equities Large Capitalization Equities U.S. T-Bills High RISK Low
    13. 13. Risk Return <ul><li>Venture Capital </li></ul><ul><li>U.S. T-Bills </li></ul><ul><li>Large Cap Equities </li></ul><ul><li>Small Cap Equities </li></ul><ul><li>Senior Debt </li></ul><ul><li>Mezzanine Debt </li></ul><ul><li>Private Equity </li></ul>Required Rates of Return
    14. 14. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    15. 15. Valuation perspective <ul><li>Why is valuation important? </li></ul><ul><li>Fundamental to all boutique investment banking work </li></ul><ul><li>Private placements require premoney valuation </li></ul><ul><li>M&A work requires relative value of acquirer/acquiree </li></ul><ul><li>Financing of transactions requires fundamental understanding of value </li></ul>
    16. 16. <ul><li>Methodologies </li></ul><ul><li>Public Comparable Analysis </li></ul><ul><li>Control Transactions </li></ul><ul><li>Discounted Cash Flow Analysis </li></ul>Valuation perspective
    17. 17. Public Comparable Analysis <ul><li>Select publicly-traded comparable companies </li></ul><ul><li>Analyze financial and operating performance </li></ul><ul><li>Derive valuation multiples for minority position based on performance of comparables </li></ul><ul><li>Adjust for size/liquidity discount and control premium </li></ul>
    18. 18. Control Transactions <ul><li>Collect historical transactions in SIC Codes </li></ul><ul><li>Compute financial performance of targets </li></ul><ul><li>Derive valuation multiples from disclosed information (multiple of sales, EBIT, EBITDA, NI) </li></ul><ul><li>Adjust for size discount </li></ul><ul><li>Apply multiples to target </li></ul>
    19. 19. Discounted Cash Flow Analysis <ul><li>Develop financial model with aid of management </li></ul><ul><li>Projected after-tax, free cash flows, discounted to present </li></ul><ul><li>Terminal value calculated as a multiple of final year Operating Profit, discounted to present </li></ul><ul><li>Appropriate discount rates applied to cash flows and terminal values </li></ul><ul><li>Appropriate terminal value multiples applied to final year profit </li></ul>
    20. 20. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    21. 21. Case study: .com valuation Valuations gone haywire: 1998-2000 Case Study: netLibrary, Inc.
    22. 22. Case study: netLibrary, Inc. <ul><li>The netLibrary Story </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><li>Raised $120+ million </li></ul><ul><li>Grew to 520+ employees in March 2000 </li></ul>
    23. 23. <ul><li>The netLibrary Story </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><li>Raised $120+ million </li></ul><ul><li>Grew to 520+ employees in March 2000 </li></ul><ul><li>Reduced headcount to 122 in September 2001 </li></ul><ul><li>Sold in Chapter 11 for $10 million </li></ul><ul><li>Zero capital returned to investors, shareholders </li></ul>Case study: netLibrary, Inc.
    24. 24. <ul><li>Founding </li></ul><ul><li>Founded 1998, three founders </li></ul><ul><li>Create an ASP model for reference content </li></ul><ul><li>Compete in $5+ billion market for published content from leading publishers into institutional libraries in academic, public and corporate libraries </li></ul><ul><li>Early support from University of Colorado libraries and University Press </li></ul><ul><li>Raised $5 million 8/98 Anschutz and Sequel </li></ul>Case study: netLibrary, Inc.
    25. 25. <ul><li>Growth </li></ul><ul><li>Bring on CFO in February 1999 </li></ul><ul><li>Raising venture funds </li></ul><ul><ul><li>Requirements: </li></ul></ul><ul><ul><ul><li>Executive Summary </li></ul></ul></ul><ul><ul><ul><li>PowerPoint </li></ul></ul></ul><ul><ul><li>Challenges </li></ul></ul><ul><ul><ul><li>Too many interested parties </li></ul></ul></ul><ul><ul><ul><li>Valuation ramping too high/too quickly </li></ul></ul></ul>Case study: netLibrary, Inc.
    26. 26. <ul><li>Funding </li></ul><ul><li>Venture funding </li></ul><ul><ul><li>Series A, $5 million at $5 million premoney </li></ul></ul><ul><ul><li>Series B, $25 million at $40 million premoney </li></ul></ul><ul><ul><li>Series C, $72 million at $225 million premoney </li></ul></ul><ul><ul><li>Series D, $15 million at $450 million premoney </li></ul></ul><ul><li>Public offering </li></ul><ul><ul><li>CSFB/Merrill Lynch/JP Morgan </li></ul></ul><ul><ul><li>Timing  April 2000 </li></ul></ul>Case study: netLibrary, Inc.
    27. 27. <ul><li>Restructuring </li></ul><ul><li>Headcount reduction </li></ul><ul><li>Focus on customers/publishers and not investors </li></ul><ul><li>Aggressive move toward EBITDA positive </li></ul><ul><li>Move toward sale of Company as endgame, not IPO or organic growth </li></ul>Case study: netLibrary, Inc.
    28. 28. <ul><li>Lessons Learned </li></ul><ul><li>Running the business </li></ul><ul><ul><li>Meet customer needs, not investor/buyer needs (“Built to Flip”) </li></ul></ul><ul><ul><li>“ Traditional” business requirements apply </li></ul></ul><ul><li>Financial </li></ul><ul><ul><li>Cost of capital  higher valuation needs to be earned </li></ul></ul><ul><ul><li>Beware competing stage investors </li></ul></ul>Case study: netLibrary, Inc.
    29. 29. <ul><li>netLibrary Epilogue </li></ul><ul><li>Investor conflict </li></ul><ul><ul><li>Series A/B aligned against Series C/D </li></ul></ul><ul><li>Buyers identified (three @ $40-50 million) </li></ul><ul><li>Conflict over the “cram down” </li></ul><ul><li>Sale in Chapter 11 bankruptcy despite cash in bank </li></ul><ul><li>Currently 60+ employees, $20+ million revenue and still EBITDA positive </li></ul>Case study: netLibrary, Inc.
    30. 30. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    31. 31. <ul><li>Sale/Merger Characteristics </li></ul><ul><li>Must possess strategic/financial value to buyer </li></ul><ul><li>Established product/service and installed customer base </li></ul><ul><li>Management team optional </li></ul><ul><li>Proprietary process or technology preferred </li></ul><ul><li>Opportunity for moderate growth or enhanced market share </li></ul><ul><li>Sufficient company size </li></ul>Case study: Sell-side M&A
    32. 32. <ul><li>Advantages </li></ul><ul><li>Value could be the highest of alternatives </li></ul><ul><li>Greatest liquidity of Alternatives </li></ul><ul><li>Possibly tax-deferred exchange </li></ul><ul><li>No Publicity if private transaction </li></ul><ul><li>Complete exit from business </li></ul><ul><li>Moderately expensive transaction costs </li></ul><ul><li>Disadvantages </li></ul><ul><li>Loss of Control </li></ul><ul><li>Management could be dramatically affected </li></ul><ul><li>No “upside” for future performance for 100% sale </li></ul><ul><li>You could be unemployed </li></ul><ul><li>Your company could lose its identity </li></ul>Case study: Sell-side M&A
    33. 33. Case study: Gates Rubber Company <ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts with revenues of over $1.5 billion </li></ul><ul><li>Family owned business </li></ul><ul><li>Desire for a tax deferred transaction </li></ul><ul><li>IBer had completed seven other assignments for Gates </li></ul>
    34. 34. Case study: Gates Rubber Company <ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts with revenues of over $1.5 billion </li></ul><ul><li>Family owned business </li></ul><ul><li>Desire for a tax deferred transaction </li></ul><ul><li>IBer had completed seven other assignments for Gates </li></ul><ul><li>Assignment </li></ul><ul><li>Conduct a worldwide sale process to a limited number of strategic buyers </li></ul>
    35. 35. <ul><li>Facts </li></ul><ul><li>World’s leading manufacturer of rubber hoses and belts with revenues of over $1.5 billion </li></ul><ul><li>Family owned business </li></ul><ul><li>Desire for a tax deferred transaction </li></ul><ul><li>IBer had completed seven other assignments for Gates </li></ul><ul><li>Assignment </li></ul><ul><li>Conduct a worldwide sale process to a limited number of strategic buyers </li></ul><ul><li>Result </li></ul><ul><li>Nine entities approached; three final offers </li></ul><ul><li>Sold to Tomkins PLC for a package of securities valued at $1.2 billion </li></ul>Case study: Gates Rubber Company
    36. 36. Investment Banking Agenda <ul><li>Overview of IB industry </li></ul><ul><li>Perspectives on market risk </li></ul><ul><li>Valuation perspective </li></ul><ul><li>Case study: .com valuation </li></ul><ul><li>Case study: Sell-side M&A </li></ul><ul><li>Q&A </li></ul>
    37. 37. Investment Banking University of Colorado Rob Kaufman November 3, 2004
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×