racofs methodology

Approach to Corporate Finance Services Radhan’s -© RACOFS

RACOFS© - The Edge of Professional Approach

• Radhan’s credo is that corporate finance is a profession.

• Therefore, Radhan is constantly engaged in developing and testing methodologies to create solutions that optimize

current market opportunities without compromising future corporate sustainability. Radhan’s Approach to Corporate

Finance Services (RACOFS), is the unique result of this effort

• Though based on rigorous analytical tools, RACOFS is far from being academic. It is a systemized optimization of

corporate finance solutions, based on the specific needs of each client on the one hand, and an accurate mapping

of available sources on the other hand. It also incorporates the best practices of approaching each finance provider

according to its regulations and standards.

• RACOFS relate to all aspects of the interface between Radhan and its clients, from the pre-engagement analysis

up to the completion. In some cases only part of the RACOFS methodology is relevant and in these cases it is

applied accordingly.

• Radhan actively encouragers discourse with both clients and finance providers regarding RACOFS and, as much

as possible, is transparent in sharing its elements.

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Phase I Pre-NDA Capital

Structure Analysis

Capital Structure Classification

Capital Structure Adaptability

Phase II Client

Engagement

CSC -1 CSC - 2

CSC - 3 CSC - 4

CSC - 5

CSA - A CSA - B

CSA - C

Post NDA CS Analysis

Terms of Reference

Engagement Letter

Phase III Full Analysis

Phase IV Process

Crossroad

Phase V Process Design

Phase VI Delivery

Internal Analysis

Financial Model

Funded

Instruments (debt, equity, m&a,

restructuring, structured finance)

Transaction Management

External Analysis

Benchmark Analysis

Forecast Analysis

Balance Sheet Development

KPI

Volatility Analysis

Value Chain

Competitive Setting

Exogenous Impacts

Business

Financial

Assumption Analysis Back Testing

Financial Sources Matrix

Term Sheet Preparation

Negotiation Planning

Process Scheduling

Non Funded Instruments

(credit rating, non deal roadshow)

Targeted Presentation

Analytical Backup

Commercial Negotiations

Legal Completion

Radhan Data Banks

Capital Structure Industry Map

Source Map

M&A Matrix

Course of Action

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While the capital structure does not restrain the ability of the corporation to achieve its goals, the structure can be more efficient usually from cost perspective or capital deployment


Structure Analysis

Capital Structure Classification

Capital Structure Adaptability

CSC - 1

CSC - 2

CSC - 3

CSC - 4

CSC - 5

CSA - A CSA - B CSA - C

Phase II Client

Engagement


Phase IV Process

Crossroad


Phase VI Delivery

Identifies the potential gap between the existing capital structure and the corporate goals. This classification is crucial as it assists in defining the motives for a transaction and setting its concrete objectives.

The capital structure is suitable to the corporation’s goals and is set in optimal terms and conditions

The capital structure does not allow the corporation to fulfill its plans because of constraints in cash flow or available funds

The capital structure that will require refinancing within two years in order for the corporation to meet its obligations or has breached, or is close to breach, its covenants

The capital structure includes payment obligations in default, or with high degree of certainty of defaulting in the very near future

Capital structure adaptability is ranked A to C, A reflecting flexibility and therefore low expected complexity; B medium complexity and C rigidness and high complexity This scale indicates an initial opinion as to the legal and practical complexity of changing the existing capital structure. It is based on a basic analysis of the structure in parameters such as: • Legal terms of the debentures • No. & identity of stakeholders • Public/ Private securities • Assets available as collateral • Liquidity

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Phase II Client

Engagement


Structure Analysis


Phase IV Process

Crossroad


Phase VI Delivery

Post NDA CS Analysis

Terms of Reference

Engagement Letter

As most of Radhan’s services are transaction based, the engagement with the client is usually preceded with an initial feasibility stage which includes the capital structure analysis. Sometimes, of course, the client requests only a segment of the full scale services (such as rating advisory or IPO advisory). Even in these cases, Radhan aims to understand the nature of the service in a broader perspective and refrains from a technical approach In cases where the client is approached by Radhan, the analysis is initially based on public information and subsequently on, after a NDA is signed, on confidential information

Based on the capital structure analysis the terms of reference for the engagement are mutually agreed upon with the client

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Structure Analysis

Phase II Client

Engagement

Phase IV Process

Crossroad


Phase VI Delivery

Internal Analysis

KPI

Efficient capital structure is based on a deep understanding of the corporation’s business positioning and required capital allocation. Therefore, Radhan’s approach to a corporate finance transaction entails an in-depth analysis of the corporation and its environment. This analysis does not presume to be of strategic nature, but rather reflect the impact of various potential scenarios on the capital structure and devise a structure that will be solid enough to withstand the possible setbacks ahead. The robustness of the capital structure takes into account the risk appetite of the decision makers in the corporation. We do not assume to replace their judgment, but rather to put a “risk tag” on the alternatives

The evolvement of the balance sheet over a three to five years time period (depending on the industry) is a comprehensive analysis of how the accounting and business facets of the corporation interact, as well as how the financials are impacted by different events. From this analysis It is also possible to understand how the p&l and cash-flow influence the balance sheet and the degree of flexibility of the capital structure

Balance Sheet Development

The key performance indicators will be defined based on the analysis of the parameters that affect the balance sheet development

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Structure Analysis

Phase II Client

Engagement

Phase IV Process

Crossroad


Phase VI Delivery

External Analysis

Value Chain

Competitive Setting

Exogenous Impacts

The location of the company in the value chain of its industry; the dependency on suppliers, clients and industry-level trends

The relative advantage of the corporation and the competitive dynamics between it and its peers

The external factors that influence the corporation such as regulation, forex etc.

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Structure Analysis

Phase II Client

Engagement

Phase IV Process

Crossroad


Phase VI Delivery

Comparative qualitative and quantitative inquiries with respect to the business strategies and operations of the comparables

Based on the analysis conducted, a range of possible scenarios are defined to model the potential outcomes and their financial implications

Benchmark Analysis

Volatility Analysis

Business

Financial Financial benchmarking to the comparables. Examination of the leverage, financial profile and covenants typical to the relevant industry

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Structure Analysis

Phase II Client

Engagement

Phase IV Process

Crossroad


Phase VI Delivery

Forecast Analysis

Assumption Analysis

Back Testing

Drilling down to the assumptions driving the forecast and classifying them according to their source - market changes or internal changes. Each category is then tested in order to understand to what degree these assumptions can be substantiated

Once the assumptions are identified, the expected forecast is back tested to examine what the outcome would have been in the past under such assumptions. Any discrepancies between the forecast and the back testing results are analyzed

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Phase IV Process

Crossroad


Structure Analysis

Phase II Client

Engagement

Phase III Full

Analysis


Phase VI Delivery

The financial model is a compilation of the full analysis and the different financial solutions from the mapped sources. It is a dynamic decision support tool that incorporates the business dynamics, the financial reports (past and forecasted) and the alternative financial instruments

Based on the Radhan Data Banks, the specific relevant financial sources for the corporation are analyzed based on various parameters including: potential transaction size, price range, expected duration, required collateral and covenants, process complexity and cost

Financial Model

Financial Sources Matrix

Course of Action

Based on the financial model, and following discussions with the corporation regarding the different viable alternatives, a chosen course of action is decided upon. At this stage the process is determined, although the specifics of the term sheet are not yet required

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Structure Analysis

Phase II Client

Engagement

Phase III Full

Analysis

Phase IV Process

Crossroad

Phase VI Delivery

Funded

Instruments (debt, equity, m&a,

restructuring, structured finance)

Term Sheet Preparation

Negotiation Planning

Process Scheduling

Non Funded Instruments

(credit rating, non deal roadshow)

Targeted Presentation

The term sheet includes all relevant parameters: volume, price and major business and legal clauses. It is adjusted to meet the requirements of each potential financial provider

Defining the parameters on which the negotiation will be held; presetting the covenant and security packages (in case of debt) or option and price mechanisms (in case of equity); analyzing the negotiations dynamics and preparing accordingly

Determining the timetable for the since multiple tasks are simultaneously assigned to different teams (accounting, legal etc.)

The targeted presentation is the marketing material designated specifically for each potential financing source and includes relevant information from the full analysis stage and the financial model

Rating agencies use dynamic matrices and methodologies which are industry specific. Radhan has intimate knowledge of the processes and models used by the rating agencies The outputs of this phase are: a financial model adjusted to the format required by the rating agency and a full presentation of the argument, that serves as framework for the analysis Non-deal road-shows are planned in a similar manner to an issuance road show

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Phase VI Delivery


Structure Analysis

Phase II Client

Engagement

Phase III Full

Analysis

Phase IV Process

Crossroad


Transaction Management

Analytical Backup

Commercial Negotiations

Legal Completion

Overseeing the correlation between the commercial understandings and the legal outcome and balancing the protection of the client’s legal rights with the need business flexibility

Proactively managing the process, in accordance with the plan in order to arrive at the best possible result for the client

Using a supporting model adjusted to meet regulatory restrictions, while enabling investors’ analysts to single out the investment in a easy, structured manner

Executing the transaction as planned in the previous phases. This includes management of all related facets of the investors’ road show or any other competitive process up to completion

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Radhan Data Banks

Capital Structure

Industry Map

Source Map

M&A Matrix Matrix of buy side and sell side opportunities based on on-going dialogues with private and public corporations and funds

CSC

CSA

A B C

1

2

3

4

5 Corporation X

Corporation Y

Corporation Z

Radhan systematically develops and maintains Data Banks with updated information regarding its operations. The Data Banks are valuable in expediting processes and enhancing the analytical processes

The comparable corporations are sorted into industry groups. Each company is located on an axis which includes the Capital Structure Classification (CSC) scale and the Capital Structure Adaptability (CSA) scale Each corporation is displayed as a circle whose size correlates to the capital base size (with financial debt & equity each represented in different color)

An up to date detailed list of specific potential financing sources with relevant information on each (last transactions, investment policy, etc.)

תודה

racofs methodology

Business

analysis phase

existing capital structure

capital deployment phase

preengagement analysis

client engagement phase

client engagement csc

csa b csa c phase

corporate goals