Michigan State University Topics in Investment Banking Fall 2006

1
Michigan State UniversityTopics in Investment
BankingFall 2006

• Deloitte Touche Corporate Finance LLC

2
Agenda

• I. DTCF at a Glance
• II. Complex Carve-Outs
• III. Strategic Options
• Company Valuation Activity
• Why Deloitte?

DTCF (Deloitte Touche Corporate Finance LLC)
3
I. DTCF at a Glance
4
Deloitte Financial Advisory Services

• Corporate Finance
• Forensic Dispute Services

• Reorganization Services
• Valuation Services

5
DTCF Service Offerings
Sale Divestiture
Capital Raising

• Pre-Sale Due Diligence
• Identify Buyers
• Prepare Confidential Memorandum
• Clear the Market
• Deal Negotiation
• Coordinate Closing

• Assess Alternative Structure
• Create a Plan
• Identify Appropriate Sources
• Transaction Modeling
• Deal Negotiation
• Coordinate Closing

MA/Due Diligence Services (Deloitte Touche
LLP) (Deloitte Tax LLP)
Tax Services (Deloitte Consulting LLP)
DTCF Investment Banking Services
Corporate DevelopmentAdvisory
Merger Acquisition
Consulting and Post Merger Integration Services (D
eloitte Consulting LLP)
Valuation Services (Deloitte Financial Advisory
Services LLP)

• Define Acquisition Goals
• Target Evaluation
• Transaction Modeling
• Finance Assistance
• Deal Negotiation
• Coordinate Closing

• Buy-side advisory
• Strategic Alternatives Evaluation
• Prioritize Shareholder Objectives
• Enhance Corporate Finance Capabilities
• Develop Financial Models and Analyses

All investment banking products and services
within the United States are provided exclusively
by Deloitte Touche Corporate Finance LLC
All investment banking products and services
within the United States are provided exclusively
by Deloitte Touch Corporate Finance LLC
6
Leading Global Investment Bank
Deloitte Touche Corporate Finance ranked 8
among investment banks (in terms of number of
deals closed) for the period January 1 through
June 30, 2006.
7
Outstanding Global Reach
DTCF and the corporate finance practices of the
member firms of Deloitte Touche Tohmatsu (DTT) or
their affiliates are able to work together to
provide industry-specific experience and
execution capabilities to assist in the
completion of MA 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.
8
Industry Specialization
DTCF serves the middle-market with experienced
professionals in eight specialized industry
verticals.
9
DTCF Quarterly Updates

• What
• Quarterly review of industry specific market data
• Focus on public company trading statistics and
  MA activity
• Who
• Internal/External
• Client/Non-client
• Buyers/Sellers
• Referral Sources
• Why
• Educate potential clients and referral sources of
  DTCF industry expertise
• Provide thought provoking industry insight and
  encourage further dialogue with management

10
II. Complex Carve-Outs
11
Carve-Out Transactions
When executed properly, a carve-out allows the
seller to successfully divest specific assets
without interrupting the business being retained

• Potentially complex and disruptive process
• Complicated accounting, tax, structural and
  execution issues
• May involve supply agreements between buyer and
  seller
• Impact on remaining business lines can be
  significant
• Unique need for comprehensive planning and
  execution team

12
MA Environment
Driven by an overall industry push to right-size,
focus on core business and strength in the
general MA market, on an annualized basis, 2006
may be one of the busiest years for carve-out
activity in recent history.
U.S. Divestiture Activity (Deals Announced
Between 1999-2006YTD)
Source Thompson
13
DTCF Approach to Carve-Out Transactions
Through years of experience, DTCF has developed a
unique approach to dealing with typical issues
faced in carve-out scenarios.
Typical Financial/Accounting Issues to Consider
Issue Transaction Impact DTCF Approach
Transfer vs. market pricing In carve-outs of cost centers, transfer pricing is typically not representative of market pricing. This can result in an understatement of revenue, thus lowering profitability and overall business value. DTCF helps clients evaluate pricing vs. the market to establish fair pricing thus helping to maximize purchase price.
Corporate overhead allocations Corporate overhead is often allocated on a simplified basis which can result in the over/understatement of stand-alone cost. This can cause problems in negotiating purchase agreements that can slow down the sale process. From past experience DTCF knows the typical problems encountered with overhead allocation and what related costs need to be considered in developing stand-alone financials. We can help in evaluating presentation options.
Unaudited financial statements At the division or facility level, unaudited financial statements can cause buyers to question the validity of data. This can slow down the deal process and negatively impact purchase price. DTCF can assemble a cross-functional deal team that includes professionals from Due Diligence, Tax, Accounting or other areas of specialization. The Deloitte name enhances credibility.
Separate financial statements, discontinued ops, FAS 144 impairment, transfer of business/ assets between units Multi-facility carve-outs may not have rolled-up financial statements or may have inter-company accounts that need to be eliminated. Without a true stand-alone financial statement, buyers will have a hard time getting comfortable with the financials and related cash flows. It is often necessary to move products or business lines in order to create the carve-out business. If inaccurately accounted for, the resulting sales, contribution margin and asset balances will distort transaction value. Based on past experience, DTCF can help establish a stand-alone financial statement that accurately portrays the business for sale with detailed support that will stand up to buyer due diligence. DTCF can also help the seller understand and evaluate the impact of a transaction to the remaining business (eg. accounting treatment, gain/ loss from sale).
14
DTCF Approach to Carve-Out Transactions (Contd)
Typical Operating/Business Issues to Consider
Issue Transaction Impact DTCF Approach
Overload in the MA department, lack of support from divisional level management Business development departments often find themselves being pulled in too many directions through the course of a transaction due to many factors including buy-side opportunities, larger sell-side transactions, hostile take over attempts, etc. Similarly, division management is often pulled in multiple directions and faced with prioritization of the transaction vs. their day jobs. DTCF looks to assist your team, not replace it. When things get hectic, you can count on our professionals to manage resources, maintain focus and keep the deal moving forward.
Foreign facility locations Carve-out facilities located in different countries can lead to transaction issues due to lack of sophisticated accounting systems, differences in accounting principles, language barriers and customs. No matter what country a facility is located in, DTCF can access professionals in the country of origin adding a local point of expertise to all aspects of the transaction.
Labor/union considerations Carve-out divestitures may require creative staffing alternatives (buy outs, early retirement, jobs banking etc.) in order to maximize the overall transaction value. In addition, unionized facilities often require the support of the union in order to move forward with a transaction. DTCF works to develop transaction structures that result in a win-win-win. We have significant experience evaluating various labor scenarios related to divestitures and can assist in developing a creative solution that maximizes value to the client. DTCF also has experience creating business cases that can be presented to union leaders.
Ancillary transaction agreements The most valuable aspect of a carve-out transaction is sometimes represented in ancillary transaction agreements, such as a supply agreement between the buyer and seller. Knowing how to structure and value these types of agreements is key, not only in negotiating a successful transaction, but also in facilitating success of the sellers remaining business going forward. From past transactions, DTCF has developed a wealth of knowledge in structuring and evaluating ancillary transaction agreements. Our deep knowledge, combined with our extensive experience in negotiating agreements can maximize value in this often overlooked aspect of the carve-out process.
15
Select Carve-Out Experience
Client ThyssenKrupp Budd Company Value Not
disclosed Sector Industrial Manufacturing /
Metals Transaction Sell-side divestiture The
Deal DTCF is pleased to announce its role as the
exclusive financial advisor to ThyssenKrupp Budd
Company (TK Budd) regarding the sale of its
wholly owned subsidiary, ThyssenKrupp Stahl
Company (Stahl), to Speyside Equity LLC
(Speyside). The stock sale transaction
encompasses all of Stahls aluminum casting
foundries which are located in Kingsville and
Warrensburg, Missouri. This transaction is
another example of DTCFs role as financial
advisor to a large corporate entity involved in a
carve-out divestiture of non-core assets.
Furthermore, the sale highlights DTCFs
experience in the industrial manufacturing
segment.
16
III. Strategic Options
17
Strategic Options Analysis(1)
Strategic Options Overview
Understand Company Needs
Review Strategic Alternatives
Maintain Capital Structure
Recap
Sale of Company
Strategic Buyer
Financial Buyer
Pvt. Equity Partner
Sr./Jr. Debt
Strategic Alliances
Strategic Acquisition
(1) Note Certain strategic alternatives above
can and often are done in conjunction with one
another in order to achieve specific Company
objectives.
18
Strategic Options Process Overview
Three Phases of a Strategic Options Engagement
Phase I
Phase II
Phase III
Strategic Alternatives Evaluation
Internal External Operations Assessment
Implementation

• Develop and analyze current operating and
  financial performance of the stand-alone Business
• Provide assessment of stand-alone aspects such as
  strength of management team, IT systems, human
  resource and other platform considerations
• Prepare carve-out stand-alone financials
  considering intercompany sales, external sales,
  allocation of expenses not pushed down (i.e.,
  SGA, benefits, corporate overhead, etc.)
• Evaluate the long-term forecasting and
  projections of the Business in light of industry
  dynamics

• Develop understanding of the products,
  distribution channels, competitors, customers and
  current issues impacting the Business
• Assist the Company in analyzing the external
  marketplace and identifying industry dynamics
  that will impact growth
• Assist the Company in analyzing the industry to
  understand valuation multiples, value drivers,
  industry trends, recent transactions
• Provide value analysis guidance as to current
  valuation range for the Business and risks to
  value
• Evaluate and discuss how the findings in Phase 1
  impact the Companys overall strategic business
  plan

• Analyze and develop a plan to improve operating
  and financial performance based on findings in
  Phase 1
• Analyze the potential sale of the Business,
  identifying key transaction drivers, value
  implications and the potential impact of a
  transaction on the Company
• Analyze potential acquisition opportunities for
  the Business, identifying the financial and
  strategic impact such an acquisition might have
  on the Company
• Analyze and identify other companies in the
  marketplace with which a potential joint venture,
  partnership or other strategic cooperative
  arrangement may provide additional strategic
  benefit to the Business

• Meet with the Company to discuss the strategic
  alternatives analyzed
• Assist the Company in determining the best
  possible alternative for the Business
• Assist the Company in proceeding with a specific
  alternative

19
Sample Deliverables
Sample Public Company Valuation Metrics
20
Sample Deliverables
Sample Precedent Transaction Valuation Metrics
21
Sample Deliverables
Sample Discounted Cash Flow Analysis
22
IV. Company Valuation Activity
23
The Case
ABC Molecular Imaging is seeking an Investment
Bank to advise them on the sale of their company.
ABC has invited you, XYZ Corporate Finance, to
join the competitive financial advisor selection
process. As analysts you have been assigned to
assemble a key component of the pitch book that
will be presented to the Board of Directors, you
need to determine a value at which you believe
their company can be sold for. ABC is expecting
to see strong supporting analysis of how you
arrived at the value. You must also bear in mind
that you are competing against other top
investment banks, all with the goal of providing
the highest value supported by the strongest
analysis. In addition, you are always aware of
the in-depth review process that takes place when
you lose a deal, there is a lot of pressure to
win this deal. Using the attached information
which includes a company snapshot, public comps,
comparable transactions, and a DCF analysis, you
need to determine the value to be used in the
pitch book.
Company Snapshot
ABC Molecular Imaging, Inc. manufactures and
distributes Positron Emission Tomography (PET)
imaging solutions. Its products include PET and
CT scanners that assist in the detection and
treatment of cancer, neurological disorders, and
cardiac diseases. The company also develops and
licenses medical image analysis applications,
which provide tools for creation, display, and
analysis of molecular images. Additionally, it
hosts an online portal to facilitate information
dissemination among physicians, radiopharmacies,
patients, and PET providers. The company offers
site planning, installation, preventive
maintenance and repair, and technical support
services. It caters to hospitals, universities,
and research institutions, imaging centers, and
cancer treatment centers.
24
Valuation Analysis
Valuation Methodologies
25
Comparable Public Companies
Valuation Summary
Valuation Summary
Financial Performance
Source Capital IQ
26
Precedent Transactions
Source Thomson
27
DCF Analysis
ABC Company
28
Range of Value Summary
29
Answer Key
30
Answer Key
31
Answer Key
32
Answer Key
33
V. Why Deloitte?
34
Why Join DTCF?
Ability to Compete and Create Value for our
Clients

• Leading middle market global investment bank
• Recruited top Wall Street talent
• Clients include small and mid-cap companies, as
  well as Fortune 500 firms
• Attractive, unique service offering
• Ability to leverage global relationships

Commitment to our Employees

• Senior bankers employ an open door policy at
  all times
• Team approach and feel create a positive working
  environment
• Early career focus on business development
• Goal is to develop future senior bankers

35
In the News

• BusinessWeek
• Best Places to Launch Your Career, 2006 Rankings
• 3 Deloitte Touche USA LLP
• 4 Goldman, Sachs Co.
• Kennedy Information
• Ranking of Global Service providers of Business
  Advisory Services
• 1 Member Firms of Deloitte Touche Tohmatsu
• Ahead of KPMG, PwC, EY, IBM, Accenture, Bearing
  Point and McKinsey.
• NBC Nightly News with Brian Williams
• Featured the efforts at the Deloitte U.S. Firms
  to provide innovative flexibility programs in a
  segment called "Balancing Act.
• BusinessWeek Features DTCF's Brenda White On
  Mortgage Lending
• Author of Deal Talk, a monthly column in Mortgage
  Banking magazine.
• For More Visit
• www.investmentbanking.deloitte.com

36
DTCF Positions

• Analyst Full Time (NY, Detroit, Chicago LA)
• Assists Sr. Associates, Vice Presidents and
  Managing Directors in deal execution, industry
  and company research/analysis and special
  internal assignments.
• High performing BBAs with focus on finance
  accounting
• Strong quantitative strategic analysis skills
• Finance investment banking experience is a plus

37
Contact Information
38
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 150
countries. With access to the deep intellectual
capital of approximately 135,000 people
worldwide, Deloitte delivers services in four
professional areasaudit, tax, consulting and
financial advisory servicesand serves more than
one-half of the worlds largest companies, as
well as large national enterprises, public
institutions, locally important clients, and
successful, fast-growing global growth 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 others 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
US, Deloitte Touche USA LLP is the US 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 US member firm are
among the nation's leading professional services
firms, providing audit, tax, consulting and
financial advisory services through nearly 30,000
people in more than 80 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 US member firms
web site at www.deloitte.com/us. All investment
banking products and services within the United
States are offered exclusively through Deloitte
Touche Corporate Finance LLC. Deloitte Touche
Corporate Finance LLC is a wholly owned
subsidiary of Deloitte Financial Advisory
Services LLP. Disclosure Deloitte Touche
Corporate Finance LLC (DTCF) is the U.S.
corporate finance practice of Deloitte Touche
USA LLP, the US member firm of Deloitte Touche
Tohmatsu. DTCF is a member firm of the National
Association of Securities Dealers (NASD). DTCF
is also registered with the SEC as a Securities
Broker/Dealer. Sell side advisory services,
buy side advisory services, private placement
advisory services, transaction sourcing services
and general corporate development advisory
services are provided by Deloitte Touche
Corporate Finance LLC. Certain related
transaction services in support of Deloitte
Touche Corporate Finance LLC engagements are
provided by Deloitte Financial Advisory Services
LLP, the parent firm of Deloitte Touche
Corporate Finance LLC. These include services
related to valuation, regulatory and licensing
support and reorganization and restructuring. Con
sulting services relating to post-merger
integration, network optimization, customer
relationship management, supply chain management,
back office billing systems and MIS solutions and
human capital management, are offered by Deloitte
Consulting LLP. Transaction due diligence
services are offered by Deloitte Touche LLP.
Tax services are offered by Deloitte Tax LLP.
Deloitte Consulting LLP, Deloitte Touche LLP and
Deloitte Tax LLP are both wholly owned
subsidiaries of Deloitte Touche USA LLP, the
parent of Deloitte Financial Advisory Services
LLP. The transaction or transaction related
experience listed in the foregoing descriptions
and tombstones entail engagements in which there
was material participation by either Deloitte
Touche Corporate Finance LLC, the Corporate
Finance Practice of Deloitte Touche LLP (the
predecessor practice of DTCF) and / or a non-US
corporate finance practice of a member firm of
Deloitte Touche Tohmatsu.