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Racofs methodology

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Radhan's Racofs Methodology

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Racofs methodology

  1. 1. Approach to Corporate Finance ServicesRadhan’s-©RACOFS
  2. 2. RACOFS© - The Edge of Professional Approach • Radhan’s credo is that corporate finance is a profession. • Therefore, Radhan is constantly engaged in developing and testing methodologies to create solutions that optimize current market opportunities without compromising future corporate sustainability. Radhan’s Approach to Corporate Finance Services (RACOFS), is the unique result of this effort • Though based on rigorous analytical tools, RACOFS is far from being academic. It is a systemized optimization of corporate finance solutions, based on the specific needs of each client on the one hand, and an accurate mapping of available sources on the other hand. It also incorporates the best practices of approaching each finance provider according to its regulations and standards. • RACOFS relate to all aspects of the interface between Radhan and its clients, from the pre-engagement analysis up to the completion. In some cases only part of the RACOFS methodology is relevant and in these cases it is applied accordingly. • Radhan actively encouragers discourse with both clients and finance providers regarding RACOFS and, as much as possible, is transparent in sharing its elements. 2
  3. 3. 3 Phase I Pre-NDA Capital Structure Analysis Capital Structure Classification Capital Structure Adaptability Phase II Client Engagement CSC -1 CSC - 2 CSC - 3 CSC - 4 CSC - 5 CSA - A CSA - B CSA - C Post NDA CS Analysis Terms of Reference Engagement Letter Phase III Full Analysis Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Internal Analysis Financial Model Funded Instruments (debt, equity, m&a, restructuring, structured finance) Transaction Management External Analysis Benchmark Analysis Forecast Analysis Balance Sheet Development KPI Volatility Analysis Value Chain Competitive Setting Exogenous Impacts Business Financial Assumption Analysis Back Testing Financial Sources Matrix Term Sheet Preparation Negotiation Planning Process Scheduling Non Funded Instruments (credit rating, non deal roadshow) Targeted Presentation Analytical Backup Commercial Negotiations Legal Completion Radhan Data Banks Capital Structure Industry Map Source Map M&A Matrix Course of Action
  4. 4. 4 While the capital structure does not restrain the ability of the corporation to achieve its goals, the structure can be more efficient usually from cost perspective or capital deployment Phase I Pre-NDA Capital Structure Analysis Capital Structure Classification Capital Structure Adaptability CSC - 1 CSC - 2 CSC - 3 CSC - 4 CSC - 5 CSA - A CSA - B CSA - C Phase II Client Engagement Phase III Full Analysis Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Identifies the potential gap between the existing capital structure and the corporate goals. This classification is crucial as it assists in defining the motives for a transaction and setting its concrete objectives. The capital structure is suitable to the corporation’s goals and is set in optimal terms and conditions The capital structure does not allow the corporation to fulfill its plans because of constraints in cash flow or available funds The capital structure that will require refinancing within two years in order for the corporation to meet its obligations or has breached, or is close to breach, its covenants The capital structure includes payment obligations in default, or with high degree of certainty of defaulting in the very near future Capital structure adaptability is ranked A to C, A reflecting flexibility and therefore low expected complexity; B medium complexity and C rigidness and high complexity This scale indicates an initial opinion as to the legal and practical complexity of changing the existing capital structure. It is based on a basic analysis of the structure in parameters such as: • Legal terms of the debentures • No. & identity of stakeholders • Public/ Private securities • Assets available as collateral • Liquidity
  5. 5. 5 Phase II Client Engagement Phase I Pre-NDA Capital Structure Analysis Phase III Full Analysis Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Post NDA CS Analysis Terms of Reference Engagement Letter As most of Radhan’s services are transaction based, the engagement with the client is usually preceded with an initial feasibility stage which includes the capital structure analysis. Sometimes, of course, the client requests only a segment of the full scale services (such as rating advisory or IPO advisory). Even in these cases, Radhan aims to understand the nature of the service in a broader perspective and refrains from a technical approach In cases where the client is approached by Radhan, the analysis is initially based on public information and subsequently on, after a NDA is signed, on confidential information Based on the capital structure analysis the terms of reference for the engagement are mutually agreed upon with the client
  6. 6. 6 Phase III Full Analysis Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Internal Analysis KPI Efficient capital structure is based on a deep understanding of the corporation’s business positioning and required capital allocation. Therefore, Radhan’s approach to a corporate finance transaction entails an in- depth analysis of the corporation and its environment. This analysis does not presume to be of strategic nature, but rather reflect the impact of various potential scenarios on the capital structure and devise a structure that will be solid enough to withstand the possible setbacks ahead. The robustness of the capital structure takes into account the risk appetite of the decision makers in the corporation. We do not assume to replace their judgment, but rather to put a “risk tag” on the alternatives The evolvement of the balance sheet over a three to five years time period (depending on the industry) is a comprehensive analysis of how the accounting and business facets of the corporation interact, as well as how the financials are impacted by different events. From this analysis It is also possible to understand how the p&l and cash-flow influence the balance sheet and the degree of flexibility of the capital structure Balance Sheet Development The key performance indicators will be defined based on the analysis of the parameters that affect the balance sheet development
  7. 7. 7 Phase III Full Analysis Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase IV Process Crossroad Phase V Process Design Phase VI Delivery External Analysis Value Chain Competitive Setting Exogenous Impacts The location of the company in the value chain of its industry; the dependency on suppliers, clients and industry-level trends The relative advantage of the corporation and the competitive dynamics between it and its peers The external factors that influence the corporation such as regulation, forex etc.
  8. 8. 8 Phase III Full Analysis Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Comparative qualitative and quantitative inquiries with respect to the business strategies and operations of the comparables Based on the analysis conducted, a range of possible scenarios are defined to model the potential outcomes and their financial implications Benchmark Analysis Volatility Analysis Business Financial Financial benchmarking to the comparables. Examination of the leverage, financial profile and covenants typical to the relevant industry
  9. 9. 9 Phase III Full Analysis Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase IV Process Crossroad Phase V Process Design Phase VI Delivery Forecast Analysis Assumption Analysis Back Testing Drilling down to the assumptions driving the forecast and classifying them according to their source - market changes or internal changes. Each category is then tested in order to understand to what degree these assumptions can be substantiated Once the assumptions are identified, the expected forecast is back tested to examine what the outcome would have been in the past under such assumptions. Any discrepancies between the forecast and the back testing results are analyzed
  10. 10. 10 Phase IV Process Crossroad Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase III Full Analysis Phase V Process Design Phase VI Delivery The financial model is a compilation of the full analysis and the different financial solutions from the mapped sources. It is a dynamic decision support tool that incorporates the business dynamics, the financial reports (past and forecasted) and the alternative financial instruments Based on the Radhan Data Banks, the specific relevant financial sources for the corporation are analyzed based on various parameters including: potential transaction size, price range, expected duration, required collateral and covenants, process complexity and cost Financial Model Financial Sources Matrix Course of Action Based on the financial model, and following discussions with the corporation regarding the different viable alternatives, a chosen course of action is decided upon. At this stage the process is determined, although the specifics of the term sheet are not yet required
  11. 11. 11 Phase V Process Design Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase III Full Analysis Phase IV Process Crossroad Phase VI Delivery Funded Instruments (debt, equity, m&a, restructuring, structured finance) Term Sheet Preparation Negotiation Planning Process Scheduling Non Funded Instruments (credit rating, non deal roadshow) Targeted Presentation The term sheet includes all relevant parameters: volume, price and major business and legal clauses. It is adjusted to meet the requirements of each potential financial provider Defining the parameters on which the negotiation will be held; presetting the covenant and security packages (in case of debt) or option and price mechanisms (in case of equity); analyzing the negotiations dynamics and preparing accordingly Determining the timetable for the since multiple tasks are simultaneously assigned to different teams (accounting, legal etc.) The targeted presentation is the marketing material designated specifically for each potential financing source and includes relevant information from the full analysis stage and the financial model Rating agencies use dynamic matrices and methodologies which are industry specific. Radhan has intimate knowledge of the processes and models used by the rating agencies The outputs of this phase are: a financial model adjusted to the format required by the rating agency and a full presentation of the argument, that serves as framework for the analysis Non-deal road-shows are planned in a similar manner to an issuance road show
  12. 12. 12 Phase VI Delivery Phase I Pre-NDA Capital Structure Analysis Phase II Client Engagement Phase III Full Analysis Phase IV Process Crossroad Phase V Process Design Transaction Management Analytical Backup Commercial Negotiations Legal Completion Overseeing the correlation between the commercial understandings and the legal outcome and balancing the protection of the client’s legal rights with the need business flexibility Proactively managing the process, in accordance with the plan in order to arrive at the best possible result for the client Using a supporting model adjusted to meet regulatory restrictions, while enabling investors’ analysts to single out the investment in a easy, structured manner Executing the transaction as planned in the previous phases. This includes management of all related facets of the investors’ road show or any other competitive process up to completion
  13. 13. 13 Radhan Data Banks Capital Structure Industry Map Source Map M&A Matrix Matrix of buy side and sell side opportunities based on on-going dialogues with private and public corporations and funds CSC CSA A B C 1 2 3 4 5 Corporation X Corporation Y Corporation Z Radhan systematically develops and maintains Data Banks with updated information regarding its operations. The Data Banks are valuable in expediting processes and enhancing the analytical processes The comparable corporations are sorted into industry groups. Each company is located on an axis which includes the Capital Structure Classification (CSC) scale and the Capital Structure Adaptability (CSA) scale Each corporation is displayed as a circle whose size correlates to the capital base size (with financial debt & equity each represented in different color) An up to date detailed list of specific potential financing sources with relevant information on each (last transactions, investment policy, etc.)
  14. 14. ‫תודה‬

Radhan's Racofs Methodology

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