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. At NYSF, 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 en- deavors, Mr. Pignataro worked at TH Lee Putnam Ventures, a $1 billion private equity firm affiliatedwith buyout giant Thomas H. Lee Partners. Prior to that, he worked in the Investment Banking department of Morgan Stanley.

Preface xi

Part One Introduction 1

Chapter 1 Merger and Acquisitions Overview 3

The M&A Process 5

Office Depot and OfficeMax 7

Chapter 2 Financial Statements Refresher 13

The Income Statement 13

The Cash Flow Statement 22

The Balance Sheet 27

Depreciation 32

Working Capital 42

Debt Schedule 44

Financial Statement Flows Example 45

Part Two M&A Analyses 53

Chapter 3 Raising Debt and Equity 55

Raising Debt 55

Raising Equity 60

Chapter 4 Asset Acquisitions and Asset Divestitures 71

Asset Acquisitions 72

Asset Divestitures 83

Chapter 5 Accretion/Dilution Analysis 87

Step 1: Obtaining a Purchase Price 88

Step 2: Estimating Sources and Uses of Funds 89

Step 3: Creating a Pro-Forma Analysis 94

Summary 105

Drivers 106

Part Three Office Depot/OfficeMax Merger 109

Chapter 6 Assumptions 111

Uses of Funds 119

Sources of Funds 122

Chapter 7 Income Statement 129

Pro-Forma Income Statement 130

Chapter 8 Cash Flow Statement 171

Cash Flow from Operating Activities 171

Chapter 9 Balance Sheet Adjustments 191

The Buyer is Paying for 191

The Buyer is Receiving 192

Additional Adjustments 192

Office Depot and OfficeMax Balance Sheet Adjustments 198

Chapter 10 Depreciation Schedule 217

Straight-Line Depreciation 218

Chapter 11 Operating Working Capital 229

Receivables 231

Inventories 233

Prepaid Expenses and Other Current Assets 235

Deferred Income Taxes and Receivables 236

Trade Accounts Payable, Accrued Expenses, and Other Accrued Liabilities 238

Income Tax Payable 240

Other Current Liabilities 241

Projecting Operating Working Capital 242

Operating Working Capital and the Cash Flow Statement 251

Chapter 12 Balance Sheet Projections 261

Cash Flow Drives Balance Sheet versus Balance Sheet Drives Cash Flow 265

Balancing an Unbalanced Balance Sheet 278

Chapter 13 Debt Schedule and Circular References 289

Debt Schedule Structure 289

Modeling the Debt Schedule 290

Circular References 314

Automatic Debt Paydowns 320

Basic Switches 322

Chapter 14 Accretion/Dilution 323

Fairness Opinions 323

Preferred Shares 325

Contribution Analysis 327

Conclusion 328

Appendixes

Appendix 1: Model Quick Steps 331

Appendix 2: Financial Statement Flows 333

Appendix 3: Excel Hot Keys 335

About the Companion Website 337

About the Author 339

Index 341

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