TheFinanceConnectionatUCSB“PlacingGauchosonWallStreet”RecruitingandIndustryOverviewsJanuary25th20111InterviewQuestions21.Howcanyoutellifanacquisitionwithbeaccretiveordilutivewithoutrunningaccretion/dilutionanalysis?Canyoutellifitisanallstockdeal?Howaboutifitisapurecashand/ordebtdeal?2Answer33Accretion:anacquisitionisaccretiveiftheacquirer’sEPS(earningspershare)increasesaftertheacquisitionDilution:anacquisitionisdilutiveiftheacquirer'sEPSdecreasesaftertheacquisitionAllstockpurchase:–Accretiveiftheacquirer‘sEPSishigherthanthetargetcompany‘sEPS–DilutiveotherwiseCashanddebtpurchase:–Accretiveif:[(interestexpenseincurredonthenewdebt)–(foregoneinterestincomeoncash)]50%)TypicallyconductLeveragedBuyouts(LBO‘s)WhatisPrivateEquity?WhyuseLeverage?Leveragemagnifiesyourgains…….andlossesCanmakelargerinvestmentswithoutusingyourownequityInterestpaymentsaretaxdeductibleHowcanyoubuyacompanyfor$10Billion,sellitfor$10Billion5yearslaterandstillgenerateaprofit?TheBeautyofLeverage$2BCF/Yr$6Bdebtleft$2BCF/Yr$4Bdebtleft$2BCF/Yr$2Bdebtleft$2BCF/YrNodebtleftCompanysoldfor$10B$2BCF+$10BSale=$12BYear1Year2Year3Year4Year5ROI=500%$2BEquity$8BDebt$10BillionProminentPEFirmsMegaFundsMiddleMarketKohlbergKravisRoberts(KKR)TexasPacificGroup(TPG)CarlyleGroupGoldmanSachsGroupApolloManagementBainCapitalHellman&FriedmanWarburgPincusBlackstoneGroupProvidenceEquityPartnersOaktreeCapitalSilverLakePartnersThomasH.LeePartners(THL)AresManagementLeonardGreen&PartnersAmericanCapitalSunCapitalPartnersPlatinumEquityGoldenGateCapitalMadisonDearbornPartnersFortressInvestmentGroupGoresGroupNotableLeveragedBuyoutsKKR,Bain$6.6B2005Carlyle,ML$5.6B2005KKR,TPG$45.0B2007ProvidenceEquity,TPG$5.0B2004KKR$25.0B1988KKR$27.0B2007THL,Bain$20.0B2008TPG,Bain,GS$1.5B2002TPG,Warburg$5.1B2005TPG,Leona