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Dividend Policy and Return of Capital

Corporations often ask investment bankers - "What should we do with our dividend?" Theoretically, dividend policy does not change the value of the firm – implementing a dividend or adding to a dividend should not change the share price1. However outside of academia, it does for reasons including: Tax on Dividends versus

Accretion/Dilution Analysis – Part IV: Synergies and Source of Funds for M&A

Accretion/Dilution for M&A with Mixed Funding Sources Larger, transformative acquisitions tend to require a mix of debt and equity financing unless the acquirer had an underleveraged balance sheet beforehand and substantial cash reserves. As such, finding the breakeven for accretion requires additional calculation. The appropriate cost of acquisition is accordingly the blended

Accretion/Dilution Analysis – Part III: Using Debt for Acquisitions

The last two parts of our Accretion/Dilution series focused on all-stock transactions, which are excellent in forming a theoretical understanding of the dynamics at play. However, acquisitions often have a cash component to the consideration, either in-whole or in-part. How this cash is funded is usually through debt, although excess balance

Accretion/Dilution Analysis – Part I: EPS, Earnings Yield and All-Stock Transactions

Accretion/Dilution is an important concept in corporate finance which is associated with mergers & acquisitions (is a transaction accretive or dilutive post-merger) – however, accretion/dilution analysis is conducted whenever an analyst looks at pro-forma earnings (or cash flow for energy and mining companies) after the evaluation of various corporate actions

WACC and Optimal Capital Structure Reviews

Client Catch-Ups and Cost of Capital Reviews Investment bankers are relationship managers and need to be on the pulse for when companies decide to undertake corporate actions such as issuing capital such as debt or equity or deciding on engaging in mergers and acquisitions. If an industry is hot – usually the

Reasons for Mergers & Acquisitions

Mergers and acquisitions are the bread and butter of investment banking. Company A buys Company B and the investment bank earns a fee as a % of the total enterprise value of the target. Then, the investment bank will earn fees on the financing - often multiples of the M&A

Early Bond Redemption Analysis

Early Retirement of Debt for Capital Structure Debt Capital Markets may approach companies to discuss opportunistically retiring outstanding debt before the natural maturity date. As bonds are contractual obligations for a set period of time, the early paydown of debt must be negotiated unless there is a provision that allows for

Hedging Interest Rate Risk

Risk From Rising Interest Rates When organizations issue debt, they face interest rate risk – that is risk from fluctuations in benchmark interest rates (the government or bank interest rate that their loan interest is based on) may cause cash flow obligations to increase. Simply, if interest rates rise, future interest