Financing an acquisition

[traineeintraining]

Hi guys silly question but if I wanted to evaluate the pros and cons of the different methods of financing a transaction
How would go about researching the current state of the bonds market / how would I find out whether issuing shares would be a good idea? Like what sources/ information should I look at?

 

[Jacob Miller]

Hi guys silly question but if I wanted to evaluate the pros and cons of the different methods of financing a transaction
How would go about researching the current state of the bonds market / how would I find out whether issuing shares would be a good idea? Like what sources/ information should I look at?

So approaching the research for something like this really isn't wildly different from researching other areas. When you're approaching a broad research task like this, you want to think about collating information (numbers, stats and commentary) from a wide range of respectable and trustworthy sources, which you can then synthesise and evaluate to come to your own conclusions and consider your own position.

As a starting point, I would personally be looking for commentary articles (e.g. newspapers or e-publications) as these will often cite more statistical resources, which you can then follow up on.

Aside from assessing the general state of the bonds market at present, you also need to consider some other factors. For some companies, depending obviously on lots of different factors, bonds may just be an unsuitable financing method irrespective of the relative health of the market. Consider things like the company's debt-equity ratio etc as a starting point here

 

[traineeintraining]

So approaching the research for something like this really isn't wildly different from researching other areas. When you're approaching a broad research task like this, you want to think about collating information (numbers, stats and commentary) from a wide range of respectable and trustworthy sources, which you can then synthesise and evaluate to come to your own conclusions and consider your own position.

As a starting point, I would personally be looking for commentary articles (e.g. newspapers or e-publications) as these will often cite more statistical resources, which you can then follow up on.

Aside from assessing the general state of the bonds market at present, you also need to consider some other factors. For some companies, depending obviously on lots of different factors, bonds may just be an unsuitable financing method irrespective of the relative health of the market. Consider things like the company's debt-equity ratio etc as a starting point here

Thank you ! and linked to this I'm currently leaning towards highlighting loans as the most effective source of financing right now due to how low-interest rates are. However this commercial knowledge I know from listening to the FT podcast so if I wanted to flesh out my answer what other issues should I considered.

Also, I was wondering if you could provide any source to help get my head around the LIBOR situation as I'm assuming that will impact lending but I don't understand it at all

 

[traineeintraining]

Hi, Clifford Chance have fantastic resources on LIBOR here. You should consider debt capital markets too with the monthly bond buying programmes of the ECB, BoE and Fed. I think whilst LIBOR is a valid consideration, the debate around inflation is more important as it is intrinsically linked to central bank support, which in turn will dictate the demand for financing.

HI thanks for the link ! I was wondering if I could get some further guidance because I'm literally so confused with the finance side of my M&A case study. So you mentioned focusing on inflation can you just check my understanding ?
- so currently interest rates are low (I looked at the BOE base rate) which means that cost of borrowing is low - however with rising inflation rates this will eventually lead to central banks increasing interest rates in order to combat this ? However I read the BOE expects inflation to naturally fall by 2022 so this may be an non-issue
- I have no clue how LIBOR fits into all this ?? so I'm researching that now
- But with what you've mentioned about bonds so I have a very limited understanding about QE but essentially I know BoE increased its bond buying due to the pandemic but now it's slowing down again? But I'm not exactly sure how this links to a corporations ability to issue bonds ?
please and thank yous !