The standard MBA curriculum at most business schools is broken down along siloed subjects such as accounting, finance, management, operations, and marketing and attempts to teach students how to be a mid-level manager at a large corporation for the rest of their lives. Unfortunately, these jobs are mostly gone, having been shipped overseas or automated. This MBA curriculum is thus outdated and not appropriate for the 21st century when most individuals will have multiple jobs and roles throughout their careers and lives. The more appropriate field of study which has yet to make it to business schools is known as Perpetuity Science. Perpetuity Science is the body of knowledge, methodologies, and optimization models related to the building, selling, and buying of perpetuities. It explains how perpetuities can be built, managed and exited from to create wealth. Perpetuity science is a paradigm shift in business and finance education in that it replaces the siloed subjects traditionally taught in undergraduate and graduate business schools with a holistic methodology that integrates industry and the capital markets into one framework. Instead of a disparate business taxonomy along the lines of economics, finance, accounting, marketing, etc., we have an initial taxonomy broken down in relation to the perpetuity, namely: Build-side – the building of perpetuities (entrepreneurs, corporations) Sell-side – the selling of perpetuities (investment bankers, wall street) Buy-side – the buying of perpetuities (private equity, corporate M&A) Within each of the three, we have various methodologies and optimization models that may touch on various subjects such as accounting, finance, economics. By starting with perpetuity science however, the student can better synthesize the various moving parts of industry and the capital markets.

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Michael Herlache MBA
Doctor of Business Administration Candidate
VP, M&A at AltQuest Group
Finance
The Science of Building, Selling & Buying
Perpetuities

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For my wife, Svitlana, whom is my treasure.

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About the Author:

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Contents
PERPETUITY SCIENCE:
Part I: Perpetuity Methodology
FOUNDATIONS OF VALUATION:
Part II: Tracking Value (Accounting)
Part III: Analyzing Value (Finance)
Part IV: Modeling Value
BUILD-SIDE:
Part V: How to Build a Perpetuity?
Part VI: Perpetuity Analysis
Part VII: Perpetuity Management
SELL-SIDE:
Part VIII: How to Sell a Perpetuity?

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Part IX: The Middle Market
Part X: M&A Multiples
Part XI: Investment Banking Coverage Methodology
Part XI: M&A Origination Methodology
Part XII: Mandate/Target Matching Methodology
Part XIII: Deal Structuring
Part XIV: M&A Process
Part XV: Firm Building & Management
Part XVI: Deliverables & Coverage
BUY-SIDE:
Part XVII: How to Buy a Perpetuity?

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CASES:
Part XVIII: Cases

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Preface

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Perpetuity Science

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The Perpetuity Scientist vs. The Functional Specialist
Build-Side:
Sell-Side:

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Buy-Side:

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Part I:
Perpetuity Methodology

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Chapter 1:
What is a Perpetuity?

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Standard of Living: Perpetuities
The Goal
How to Get the Goal
Perpetuity
I. Building Perpetuities
II. Buying Perpetuities
III. Selling Perpetuities
The Lab of Perpetuities
Excel
Demand for Perpetuities

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Types of Perpetuities

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Risk (discount rate) on the following page:

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Return:

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Growth:

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Margins (Cash flow):

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Multiples:

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Business: The Science of the Perpetuity
Introduction to Business
The Corporation’s Goal
What is Intrinsic Value?
How to Become Wealthy?

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FOUNDATIONS OF
VALUATION

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Part V:
Tracking Value
(Accounting)

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Chapter 6:
Tracking Value with Accounts
Value
Accounts and Accounting
Accounts, Accounting & Excel
Account Filings & Public Data
Account Statements: P&L

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Account Statements: Balance Sheet
Account Statements: Statement of Cash Flows

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Part VI:
Analyzing Value with
Models (Finance)

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Chapter 7:
Analyzing Value with Models
Analyzing Value
From Accounts to Models

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Modeling
Modeling in Excel
Analysis of Account Statements

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Part VII:
Modeling Value

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Chapter 8:
Finance with Excel
Finance with Excel
Excel Concepts Needed for Finance
Express Decisions with Excel

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Using a Financial Model for Decision Making: The Investment Decision

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Using a Financial Model for Decision Making: The Financing Decision

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Wealth Maximizing Decisions
Cash is King
Cash Flow Definition (FCF)
Role of the Finance Professional
Capital Markets
Capital Markets and Information

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Multiple Investment and Financing Decisions: Portfolio
Modeling a Strategic Alternative
Finance: Exchanging Value Through Time

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Cost of Capital
Finding a Value in a Financial Model
Financing Alternatives: Loan Amortization

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Analyzing the Strategic Alternative: Sensitivity Table
The Financing Alternative: Nominal vs. Real Cost
Strategic Alternatives Analysis
Cash Flows and Risk
Cost of Capital and Opportunity Cost
The Discount Rate

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Value of Equity
Sources & Uses
Accounting Statements: Statement of Cash Flows
Valuation Methods: Total Enterprise Value (TEV) vs. DCF
Accounting Value vs. Finance Value
FCF and DCF
Portfolio Analysis and the Capital Asset Pricing Model (CAPM)

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Ex Ante vs. Ex Post Returns
Portfolio Returns and The Efficient Frontier

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The Efficient Frontier and the Optimal Portfolio
Security Market Line & CAPM
Security Market Line & Investment Performance
Security Market Line & Investment Performance

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Risk Adjusted Performance
CAPM & Investment Performance
Excess Return

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Beta & R^2
Alpha and Efficient Markets
CAPM and the Cost of Capital
Valuing Securities in Efficient Markets

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Chapter 9:
Financial Statement Modeling
Financial statement modeling best practices:
Financial Modeling Steps:

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BUILD-SIDE

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Part I:
How to Build a Perpetuity?

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Perpetuity Science & The Perpetuity Scientist
Stage of the Perpetuity:

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Chapter 31:
How to Build a Benefit Stream?
Reasoning to Platform
Existing Platform to New Value Theme

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Platform vs. Mod
The Value of Technology & Science
The Consumption Process & Growth Hacking

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Chapter 32:
How to De-Risk a Benefit Stream?

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Part VIII:
Perpetuity Analysis

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Market Analysis

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Value Chain Analysis
Gap Analysis
Product/Platform Analysis

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Chapter 10:
How to Be a CEO?

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Chapter 10:
How to Be a Consultant?

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Part IX:
Perpetuity Management

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Chapter 15:
Perpetuity Management
The Purpose of the Company
How Companies Create Value
Strategy & Finance

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Valuation Drivers
The Role of the CEO

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Perpetuity Management
Valuation

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Perpetuity Management with Discounted Cash Flows
Growth or Restructuring
Perpetuity Management Process

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Measuring Value Added: ROIC vs. Market Return
Measuring Value Added: Economic Profit & NPV
Valuation in the Public Markets
Real Markets & Financial Markets
Perpetuity Planning & Control (i.e. Management)

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Value Metrics
Perpetuity Planning & Control (i.e. Management) in Practice
Value Metrics: Market Value Added & Total Return to Shareholders
Value Metrics: DCF vs. Earnings Multiple

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Cash Flow
Perpetuity Management Capability
Perpetuity Lifecycle

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Chapter 16:
Valuation Methodologies
1. Public Company Valuation
2. Comp Companies –

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3. Precedent Transactions

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4. Discounted Cash Flow (DCF)

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Notes:

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Chapter 17:
Framing Valuation

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Chapter 18:
The Market for Perpetuities

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SELL-SIDE

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Part X:
How to Sell a Perpetuity?

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Chapter 19:
Investment Banking

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Notes:

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Traditional Investment Bank Responsibilities:
Junior Banker:
Mid Banker:
Senior Banker:

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Chapter 20:
How to Become an Investment
Banker Methodology

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Getting Started in Investment Banking

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Part XI:
The Middle Market

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Chapter 21:
The Middle Market
Overview of Middle Market

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Part XII:
M&A Multiples

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Chapter 22:
M&A Multiples

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Part XII:
Investment Banking
Coverage Methodology

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Chapter 29:
Investment Banking Coverage
Methodology

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Chapter 30:
Index Building & Benchmarking

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Chapter 31:
Financial Data Sources



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Chapter 32:
Industry or Sector Newsletter

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Chapter 34:
Industry or Sector Report

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Chapter 35:
Rolodex Building

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Part XIII:
M&A Origination
Methodology

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Chapter 23:
M&A Origination Methodology

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Step 1: Database Utilization & Emails Collected
Step 2: Email Inquiry
Step 3: Offer & Price Inquiry

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Step 4: Phone Call Request (by Sellers) or Meeting Request

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Step 5: Phone Call or Meeting

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Step 6: Add Backs Calculated and Teaser Created
Step 7: Contact Buyer List & Deal Put on M&A Marketplaces
Step 8: NDAs Signed with Buyers
Step 9: Teaser with Name Given to Buyer
Step 9: Teaser with Name Given to Buyer

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Step 10: IOI from Buyer
Step 11: Buyer Seller Meeting
Step 12: Purchase Agreement Given to Seller
Step 13: Signed Purchase Agreement with Different Terms
Step 14: Enter Due Diligence
Step 15: Complete Due Diligence
Step 16: Closing & Checks Cut

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Chapter 24:
Mandate/Target Matching
Methodology

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Chapter 25:
Deal Structuring

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Part XIV: M&A Process

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Chapter 26:
M&A Process
From Origination to M&A Execution
Building the Buyer Shortlist

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The Teaser
The NDA
Teaser With Name of Business & Financials
The CIM

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The IOI (Indication of Interest)
The Buyer/Selling Meeting
The LOI (Letter of Intent)

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Due Diligence
The Purchase Agreement
Pitchbook Table of Contents (exploring strategic alternatives to win a
mandate):
Sell side after winning the mandate:

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Confidential Information Memorandum (CIM) Table of Contents:
M&A Banker’s Role: M&A banker is hired to run a process:

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Auction Process:
Controlled Sale:
Targeted High Level Solicitation:
Closed Negotiation:
Presentation and Packaging
Buyer Qualification:
Marketing:

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Pitching:
Bake Off to Win Mandate:
The Pitchbook to Win Business:

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Part XV: Investment Bank
Management

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Chapter 27:
How to Build a Boutique Investment
Bank

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How to Advise on Strategic Alternatives?

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Chapter 27:
Running the Boutique Investment
Bank

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Part XVI: Investment
Banking Deliverables

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Chapter 28:
Investment Banking Deliverables

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Chapter 36:
Adjusted EBITDA

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Chapter 37:
Valuation

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Chapter 38:
Teaser

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Chapter 39:
CIM (Confidential Information
Memorandum)

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Chapter 39:
Purchase Agreement

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BUY-SIDE

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Part XVII:
How to Buy a Perpetuity?

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Chapter 40:
The Principle of Investing

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Chapter 41:
How to Become the Next Warren
Buffett

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Chapter 42:
The Operating Model

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Chapter 43:
Financial Buyer aka Private Equity
(LBO)

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Leveraged Buyout (LBO) Analysis:
Notes:
Construction of LBO Model

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Reverse LBO:
PE transaction rationale:
Credit officer meeting:
PE work:

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PE interview:

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Chapter 44:
Strategic Buyer aka Corporation
(Merger)
Merger Analysis:
Notes:
Merger Modeling

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Dilution is proforma decrease in EPS. What causes dilution?
Collars:

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Chapter 45:
Perpetuity Science & Portfolio
Theory

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Chapter 45:
How to Start a LMM Search Fund