syllabus | Course Paper

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Investment Banking: Valuation Tools and Techniques

FIN 685 Summer 2018

Faculty Name: Octavian Ionici, PhD Office Location: T 50

Faculty E-mail : oionici@american.edu Phone: 202-885-1877

Office Hours: Monday 3:00PM – 5:00PM; Monday 3:00PM – 5:00PM or by appointment.

Preferred contact (phone or e-mail): Email. Please allow a one business day turnaround.

Class Time: Monday & Wednesday Room: KSB T 60 & FSIT Lab Time: 5:30 PM-8:40 PM

Course Description:

The course is designed to provide a practical application of corporate finance and investment

skills to a variety of analyses commonly performed by investment bank and private equity

professionals. Fundamental, relative valuation, leveraged buyouts and other common financial

transactions will be covered. We will explore the process of each transaction and place heavy

emphasis on the role of the financial professional in analyzing each situation. Students will gather

data from primary source documents, and build and apply models typically used in practice by

investment banks, commercial banks and corporate finance consultants. The course is designed

for those interested in careers in investment banking, private equity, commercial banking,

corporate finance consulting, strategic planning and new ventures. In this course, the basic

analytical foundations to assess a transaction will be covered with heavy emphasis on valuation

techniques.

Prerequisites:

The topic is inherently quantitative. Because most of the work of the course will be based on

spreadsheets, familiarity with Excel is required

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. We will, however, go over various Excel

functions and tools during our sessions. The course prerequisites are FIN 614 and Excel

proficiency. It is the student’s responsibility to be certain that the prerequisites have been

successfully completed.

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For getting up to speed, students are encouraged to attend the on-line Excel 2007 training courses before the beginning of the

semester at https://support.office.com/en-us/article/Excel-training-9bc05390-e94c-46af-a5b3-d7c22f6990bb

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Textbook: Investment Banking: Valuation, LBOs and M&As

Joshua Rosenbaum, Joshua Pearl, Joseph Perella

2nd Edition, John Wiley & Sons 2013 ISBN: 978-1-118-65621-1

Care should be taken to note that this is only a provisional reading schedule, and may, at my

discretion, be changed in order to better suit the aptitude and interests of the class, should this

prove desirable. If any changes are made, they will be discussed in class.

Course Objectives:

After completing this course, students should be able to:

(i) Develop comprehensive quantitative models for firm and equity valuation based on

comparables, precedent transactions and discounted cash flow analysis.

(ii) Identify and interpret the key value drivers for a firm or industry.

(iii) Develop and analyze an LBO transaction rigorously.

(iv) Evaluate the trade-offs involved in various deal structures, and recommend a structure for

a given transaction.

(v) Present valuation analyses and assumptions in a professional manner.

(vi) Improve your ability with Excel tools and have better familiarity with financial data

programs.

(vii) Have a greater understanding of the business strategy of well known companies and

industries.

(viii) Identify differences between the valuation process of private and public companies.

Specifically, the course will cover topics such as:

Valuation: Taking theory into practice, including creating the financial models used in the core

valuation methodologies such as comparable companies analysis, comparable transaction

analysis, DCF, LBO and merger consequences (accretion/dilution model)

Essential Terms: Understanding the basics of buy side, sell side, fairness opinions, defense

advisory, and general advisory product offerings, and understanding how the product fits into

the larger product offerings of an investment bank

Financing: How transactions are financed by strategic buyers and financial sponsors, and

challenges in the current market environment

Due Diligence Basics: Finding all the skeletons in the closets and knowing where all the bodies

are buried

Transaction Mechanics: Topical overview of transaction accounting and tax structures

Conduct of the Course:

• Instruction will be provided via traditional lectures, hands-on modeling and class discussions,

with student presentations of their case studies and assignments. Selection and design of the

cases and projects are guided by pedagogical considerations of “learning by doing”.

• Although new material may be covered, most of the course involves applying and integrating

ideas the student has learned in earlier courses, leading to a deeper understanding and

appreciation of the value and limitations of the theory of finance. Analytical and critical thinking

as well as creative problem solving will be emphasized.

• In the event that some of the applications are not as familiar as others, the student may have

to undertake outside research into the issues before analyzing the case.

• As an integral component of modeling and case analysis, spreadsheets will be utilized

extensively.

• Recommended problem sets will be assigned in class to help you assess your understanding of

the material.

• The quality of your research as well as the presentation performance will be taken in

consideration in determining your grade.

If you miss a class, it is your responsibility to obtain the information covered during your absence

from your fellow classmates.

Grading:

Your grade will be based on the following: case write-ups, homework assignments, one project, one

comprehensive final exam, class participation including the discussion of recommended homework

assignments.

Case write-ups (30%)

Students are expected to analyze some cases and to prepare a 5 page write-up. Written case

format should be as follows:

I: Case Overview –statement of the problem (A few sentences summarizing the case – seldom

more than one or two paragraphs)