Leveraged Buyouts: A Practical Guide to Investment Banking and Private Equity + Website

Praise for Leveraged Buyouts "Pignataro's books are exceptional guides to finance and LBO analysis. Leveraged Buyouts, particularly, is a fantastic primer for those looking to understand the practical application of private equity. If A Random Walk Down Wall Street is the bible for understanding the financial world, Pignataro's books are the bible for understanding the application." —Fred Coulson, Founder and Managing Partner, Five Elms Capital "Paul's approach to financial modeling and valuation is a great road map for anyone looking to develop the skill set necessary to work on complex financial transactions. His replicable process is a great foundation for investment professionals and simplifies transaction and valuation analysis with a step-by-step approach and real-world examples." —Eric J. Bruun, Managing Director, CID Capital "From our view at Graham Partners, Leveraged Buyouts provides an excellent technical guide for young private equity and investment banking professionals, who need to be capable of building an analytical model to evaluate and price a leveraged buyout, and then need to be able to explain their thinking to the firm's most senior personnel. Paul Pignataro's writing is clear and straightforward, and we have made Leveraged Buyouts required reading for new personnel on the Graham Partners team." —Steven C. Graham, Senior Managing Principal, Graham Partners " Leveraged Buyouts is an extremely valuable 'how-to-do-it' primer on fundamental and advanced analytic techniques for creating and evaluating private equity acquisition models. Its ongoing dissection of the creative acquisition of H. J. Heinz by Warren Buffett's Berkshire Hathaway and 3G Capital will be of great practical interest to students, finance professionals, and investors." —Charles H. McGill, Adjunct Finance Professor, NYU Stern School of Business "From the bootstrap deals of the '70s, to the $26 billion buyout of RJR Nabisco in the '80s, to today's $28 billion blockbuster deal for Heinz, LBOs have transformed the capital markets and the way in which companies are bought and sold. Yet, other than a handful of Wall Street practitioners, few understand how they work. In Leveraged Buyouts , Paul Pignataro does a masterful job of using the Heinz deal to explain the intricacies of LBOs, making his book a must-read for any aspiring investment professional or anyone with an interest in finance." —Jack Perkowski, Founder and Managing Partner, JFP Holdings Ltd. "Anyone who wants to become an expert at leveraged buyouts must read this book. Paul's expertise in this area is invaluable and this book is a straightforward 'how-to' guide that is a must have addition to any finance library." —Obed Cepeda, Portfolio Manager, Bishop, Rosen & Co.

Preface The Heinz Case Study How This Book is Structured Part I: Leveraged Buyout Overview Chapter 1:  Leveraged Buyout Theory Cash Availability, Interest, and Debt Pay Down Operation Improvements What Is a Good Leveraged Buyout? Is Heinz a Leveraged Buyout? Chapter 2: What is Value? Book Value Market Value Enterprise Value Multiples Three Core Methods of Valuation Chapter 3:  Leveraged Buyout Analysis Purchase Price Sources and Uses of Funds IRR Analysis Part II: Leveraged Buyout Full Scale Model Chapter 4:  Assumptions Chapter 5:  The Income Statement Revenue Cost of Goods Sold Operating Expenses Other Income Depreciation and Amortization Interest Taxes Non–Recurring and Extraordinary Items Distributions Shares Heinz Income Statement Last Twelve Months (LTM) Income Statement – Making Projections Chapter 6: Cash Flow Statement Cash from Operating Activities Cash from Investing Activities Cash from Financing Activities Heinz Cash Flow Statement Heinz Cash Flow Last Twelve Months (LTM) Cash Flow Statement – Making Projections Chapter 7: The Balance Sheet Assets Liabilities Heinz’s Balance Sheet Chapter 8: Balance Sheet Adjustments Heinz Balance Sheet Adjustments Chapter 9: Depreciation Schedule Straight Line Depreciation Accelerated Depreciation Deferred Taxes Projecting Depreciation Amortization Deferred Taxes Chapter 10: Working Capital Asset Current Asset Liability Operating Working Capital Heinz’s Operating Working Capital Projecting Operating Working Capital Operating Working Capital and the Cash Flow Statement Chapter 11: Balance Sheet Projections Balancing an Unbalanced Balance Sheet Chapter 12: Debt Schedule and Circular References Debt Schedule Structure Modeling the Debt Schedule Circular References Automatic Debt Paydowns Basic Switches Finalizing the Model Chapter 13: Leveraged Buyout Returns Exit Multiples Returns to 3G EBITDA Improvements Conclusion Part III: Advanced LBOs Chapter 14: Accelerated Depreciation MACRS Accelerated vs. Straight Line Depreciation Chapter 15: Preferred Securities, Dividends, and Returns to Berkshire Hathaway Preferred Securities Preferred Dividends Returns to Berkshire Hathaway Chapter 16: Debt Covenant Ratios, and Debt Fee Amortization Coverage Ratios Leverage Ratios Debt Fee Capitalization and Amortization Chapter 17: Paid in Kind Securities Chapter 18: Closing Adjustments Appendices Appendix 1: Model Quick Steps Appendix 2 – Financial Statement Flows Appendix 3 – Excel Hotkeys About the Companion Website About the Author Index

PAUL PIGNATARO is the founder and CEO of the New York School of Finance (NYSF). He has over thirteen years of experience in investment banking and private equity in business mergers, acquisitions, restructurings, asset divestitures, asset acquisitions, and debt and equity transactions covering the oil, gas, power and utility, Internet and technology, real estate, defense, travel, banking, and service industries. Mr. Pignataro continues to participate on the training team, actively providing training at bulge bracket banks and M&A teams at corporations, and billion-dollar funds. Prior to his entrepreneurial endeavors, Mr. Pignataro worked at TH Lee Putnam Ventures, a $1 billion private equity firm affiliated with buyout giant Thomas H. Lee Partners. Prior to TH Lee, Mr. Pignataro worked in the investment banking department of Morgan Stanley.