In this case study, you’ll complete an extensive analysis of Jazz
Pharmaceuticals [JAZZ], a leading US-based specialty pharmaceuticals company with a direct sales presence in North America and Europe, and distribution via partners in the rest of the world.
You will build a flexible valuation model for the company, including a 3-statement projection model with revenue and expense assumptions based on the company’s current drugs and future drug pipeline.
You will also select appropriate sets of comparable public companies and precedent transactions, calculate valuation multiples for them, and then build a 10-year discounted cash flow (DCF) analysis; you will combine all of these methods to determine the company’s implied share price.
Finally, in the last module of this case study, you will interpret the output of the model and make recommendations from 3 different perspectives - an investment analyst at a hedge fund, an equity research associate, and an investment banker.
This module focuses on how you use a valuation in real life, including in an investment banking pitch book, a stock pitch, and an equity research report.
9.1 Linking the Methodologies (27:15)
In this lesson, you’ll learn how to link the valuation methodologies and calculate a company’s implied share price under a range of different assumptions and multiples; you’ll also learn how to interpret this data, and what makes it tricky to make all the numbers precise.
9.2 Creating the “Football Field” Chart (32:59)
In this lesson, you will learn how to create the infamous “football field” chart that you can use to compare different valuation methodologies; you’ll also learn the trade-offs of each methodology, and which set of implied multiples and share prices you’re likely to place the most faith in for this scenario.
9.3 How to Use Valuation in an Investment Banking Pitch Book (31:21)
You will learn how to use valuation analysis in investment banking roles in this lesson, with a focus on how you can advise clients and potential clients on the best options for their companies, as well as the potential price they could receive in an M&A or capital markets deal. You’ll also get a real-life example of a pitch book presentation for Jazz Pharmaceuticals.
9.4 How to Use Valuation to Outline a Buy-Side Stock Pitch (26:05)
You will outline a stock pitch for Jazz Pharmaceuticals in this lesson, and learn how to make a decision when the numbers are ambiguous, as well as how to support your arguments with data and how to discuss catalysts and risk factors in a convincing way.
9.5 Stock Pitch for Jazz Pharmaceuticals (34:22)
You will learn how to create a stock pitch for Jazz Pharmaceuticals in this lesson, for use in hedge fund / asset management / other public markets roles – and you’ll learn the 6 key points you always need to include, and how to use the analysis and valuation we completed to make your argument convincing.
9.6 Equity Research Report for Jazz Pharmaceuticals (26:28)
In this lesson, you’ll get an example of an equity research report for Jazz that you could use to make buy/sell/hold recommendations for the company, and you’ll learn how research reports differ from stock pitches and other valuation use cases.
9.7 The Moral Implications of Making Money in a Broken and Corrupted Market (22:30)
You will understand the moral implications of investing in or advising companies in broken markets in this lesson, including a positive view of Jazz and a more cynical view of the company as an entity that’s exploiting the system and stealing money from others.
Module 10: Merger Model (Men's Wearhouse / Jos. A. Bank)
In this case study, you’ll analyze a possible M&A deal between Jos. A. Bank and Men’s
Wearhouse, two leading US-based men’s clothing retailers, make a recommendation on the purchase price and deal structure, and draw some conclusions on the accretion / dilution and qualitative merits of the deal.
You will learn the fundamentals of M&A deals and merger models in the first few lesson. Then, you'll project the financial statements for both companies and set up the Sources & Uses and Purchase Price Allocation schedules.
Then, you will combine the Income Statements and Balance Sheets of both companies, factor in possible synergies, track the debt paydown over time, and analyze key metrics, ratios, and accretion / dilution sensitivities for the deal.
After you complete this analysis, you will analyze an alternative deal between Jos. A. Bank and Eddie Bauer, a privately held retailer. In this set of lessons, you will learn the differences between acquisitions of public vs. private companies, and you'll assess accretion / dilution for an acquisition of this private company.
Finally, you will answer the case study discussion questions on both deals, and you'll get practice with real M&A / merger model case study exercises given at banks in the last few lessons.
10.1 Why and How Would You Buy Another Company? (34:24)
In this lesson, you’ll learn why one company might want to acquire or merge with another company, including many real life examples of the motivation behind high-profile deals; you will also learn how the M&A process works, and how buyers finance acquisitions.
10.2 Merger Model Mechanics and Accretion / Dilution (38:08)
You will learn the mechanics behind a merger model in this lesson, including how to set up the main assumptions, how to determine the cost of cash vs. debt vs. stock, how to combine 2 companies’
Income Statements, and how you can tell in advance if a deal is accretive or dilutive. You will also learn the problems and drawbacks of accretion / dilution analysis.
10.3 Rules of Thumb for Determining Accretion / Dilution (17:39)
You will learn a quick, simple rule of thumb you can use to determine whether a deal will be accretive, dilutive, or neutral to the buyer’s EPS in this lesson; you’ll get practice applying it, and will also learn some of the downsides and limitations to this rule.
10.4 Case Study Overview (17:06)
In this lesson, you’ll get an overview of the case study taught in this module, and you’ll understand how we’re going to expand upon the simple merger model created in the previous lessons to more
accurately model several real-life M&A transactions.
10.5 Financial Projections for the Buyer (Men’s Wearhouse) (36:23)
You will learn how to build financial projections for the buyer, Men’s Wearhouse, in this lesson, including how to link key metrics to the store count, and how to project the company’s cash flows without building full Balance Sheet and Cash Flow Statement projections.
10.6 Financial Projections for the Seller (Jos. A. Bank) (32:26)
You will learn how to project the Income Statement and key Cash Flow Statement line items for Jos. A.
Bank, the seller, in this lesson, and you’ll compare and contrast their financial statements and operational performance with those of Men’s Wearhouse.
10.7 Transaction Assumptions (30:35)
In this lesson, you will learn how to make assumptions for the purchase price and cash vs. stock vs. debt split in a merger model, including what to do if you are not building a model based on a deal that actually took place in real life.
10.8 Sources & Uses of Funds (21:35)
You will learn why the Sources & Uses schedule matters in this lesson, as well as its true purpose, why the Sources side must always equal the Uses side, and how to use a “plug” to ensure that Sources of Funds always matches Uses of Funds.
10.9 Purchase Price Allocation (30:01)
In this lesson, you’ll learn about the purchase price allocation process in an M&A deal, including why and how Goodwill and Other Intangible Assets get created, the difference between Intangibles with definite vs. indefinite lives, how fixed asset write-ups work, and how deferred tax-related items are adjusted when an acquisition closes.
10.10 Combining the Balance Sheets (21:30)
You will learn how to combine the Balance Sheets of the buyer and seller in this lesson, including how to incorporate the output of the Sources & Uses schedule and the Purchase Price Allocation schedule, and how to ensure that you include all the relevant adjustments.
10.11 Combining the Income Statements (28:45)
In this lesson, you will learn how to combine the Income Statements of the buyer and seller in an M&A deal, including how to factor in all the acquisition effects and why and how our figures might disagree with the companies’ own EPS accretion / dilution guidance.
10.12 Estimating Synergies (27:52)
You will learn how to estimate revenue and expense synergies in an M&A deal in this lesson, including potential synergies for Men’s Wearhouse and Jos. A. Bank here, as well as real examples of estimates from the investor presentation on the deal and equity research.
10.13 Debt Schedule (22:00)
In this lesson, you’ll learn how to create a “mini-Cash Flow Statement” to track how the combined companies’ cash and debt balances change over time, and what the Income Statement impact of those changes is.
10.14 Key Metrics and Ratios (26:09)
You will learn how to analyze the combined company’s key metrics and ratios in this lesson, including growth and margin-related metrics, and credit stats and ratios such as Debt / EBITDA and EBITDA / Interest Expense; you’ll also learn what these figures tell you about the viability of the deal and how much the seller can negotiate the price.
10.15 Sensitivity Tables (24:10)
In this lesson, you’ll learn how to pick the most appropriate assumptions for use in sensitivity tables in a merger model, and you’ll learn how to interpret the output of the sensitivity tables to make more appropriate recommendations to a client or potential client.
10.16 Financial Projections for a Private Seller (Eddie Bauer) (28:31)
You will learn how to project the financial statements of a private seller, Eddie Bauer, in this lesson, and you’ll learn the key challenges when working with a private company that has extremely limited
financial information.
10.17 Transaction Assumptions for a Private Seller (23:42)
In this tutorial, you’ll learn how the transaction assumptions in a merger model differ when the seller is private, and how other schedules such as Sources & Uses also change; you will also learn how to factor in a simultaneous share repurchase from the acquirer.
10.18 Combination of Financial Statements for a Private Seller (25:24)
You will learn how to combine the financial statements of Jos. A. Bank and the private seller, Eddie Bauer, in this lesson, and you’ll see how you can estimate debt repayment and how the interest expense changes over time, even with more limited information.
10.19 Key Metrics, Ratios, and Sensitivities for a Private Seller (25:55)
In this lesson, you’ll learn how to interpret key metrics and ratios for the Jos. A. Bank / Eddie Bauer deal, as well as the sensitivity analyses we complete for the key assumptions; you’ll also draw some
conclusions about what to tell Jos. A. Bank based on the output of these tables.
10.20 Case Study Discussion and Answers (32:03)
In this lesson, you’ll learn how to answer the written case study questions posed in the beginning of this module, and you’ll understand how bankers might advise Jos. A. Bank on the potential transactions here – plus, you’ll understand what this type of deal says about society and culture at large.
10.21 Assessment Center Case Study (23:31)
You’ll get practice completing an M&A / merger model practice case study given at an assessment center in this lesson – and you’ll learn how to simplify and cut corners to save time and calculate the answers as quickly as possible.
10.22 Additional Practice Exercises (52:08)
You’ll get practice completing an M&A / merger model practice case study given at an assessment center in this lesson – and you’ll learn how to simplify and cut corners to save time and calculate the answers as quickly as possible.