A Practitioner’s Guide to the Seven Prices of One Deal, and Which of Them Is True
Julian R. Sterling
These are the four Excel workbooks that go with the book. Every figure the book prints is
reproduced in them by a live formula rather than a typed constant — move the target's net
debt, flip a lease into the covenant, change the amortisation life or the cost of capital, and
every dependent number moves with it. Each one ends with a Checks sheet setting
the printed figure beside the computed one: 144 controls in all, every one green.
If a control ever reads FAIL, the workbook is wrong, not the book.
Free to download. No sign-up, no email address, nothing to fill in.
Everything described below is inside it, with the read-me.
The four workbooks
Chapters 1 to 4
Seven prices, and the three that are one number
The same acquisition quoted seven ways, as live rows. Three of them print
9.0000 times EBITDA and not by coincidence: taking net debt out of the
numerator and putting it back in the denominator leaves the multiple where it was. The sheet
shows the algebra, then the two multiples that are genuinely different — 9.0000 and
9.3496 — and the hybrid at the full earn-out, 9.9058, which divides the
outlay of a world in which the target outperformed by the EBITDA of a world in which it has
not yet.
Beside them sit the four debt-like items with their three qualifications as
switches: already on the balance sheet, bears interest afterwards, counts in the
lender's covenant. Put the leases back into the covenant and into the interest charge —
the combination that looks rigorous and bills the rent twice — and the headline goes from
minus 15.7134 to minus 19.8485 per cent.
The_Seven_Prices.xlsx · XLSX · 22 KB
Chapters 10, 12 to 15
Four accretion conventions at once
Five years of the combined income statement with the synergy ramp, the cost to achieve, the
transaction fees, the intangible amortisation and every interest line — printed under
all four conventions at the same time. Year one runs from
minus 15.7134 per cent statutory to plus 11.2171 on the cash
convention that half the market uses, on the same deal and the same accounts.
Then the funding and the 7.9228 per cent dilution; the allocation of the price with the
deferred tax liability that IFRS 3 requires on the intangibles and that the income statement
quietly assumes; the twelve-line bridge from standalone to combined earnings
per share, which closes to zero; and the eight charges the deal creates, ranked, beside the one
it did not create.
The_Combined_Accounts.xlsx · XLSX · 24 KB
Chapters 5 to 9, and 16
The bridge, and the board's version beside it
The earn-out at fair value, discounted at the cost of debt rather than the cost of capital
because the probability has already removed the risk. The target on a discounted cash flow,
and the 31.7236 per cent premium that follows. The synergy ramp and the
9,400,000 bill to achieve it, which is 1.3056 times the run rate and which the board paper
leaves out.
Then the four-line value calculation, minus 17,530,855, set beside the board's
plus 13,436,667 and reconciled item by item to the 30,967,522 that separates
them — no error on either side, five conventions. The break-even run rate at both
integration budgets, 1.2698 and 1.2979 times what was announced. And the cost of capital
against growth grid in both forms, twenty-five cells each.
Value_Created.xlsx · XLSX · 26 KB
Chapters 11 and 17
The rate that refers to itself
The margin ladder, the leverage and the earn-out's fair value are three quantities that each
depend on the other two. The sheet solves the fixed point in the open, over eight passes you
can watch — and then walks into the band, 508,424 wide and beginning
exactly at the covenant rung, where the ladder admits no solution at all: at
the low rate the leverage crosses, at the high rate the earn-out is worth less and it falls
back below. The width has a closed form, and it is the same 203,370 that moves the value
created.
Then the target's net debt as a live input, with the accretion decomposed into the three
columns that sum exactly: the debt-versus-equity arbitrage everybody cites is worth
0.0338 of a point, the accounting effect sixteen times that, and the step at
the rung 3.8376 points for 40,000 of net debt.
The_Ladder.xlsx · XLSX · 26 KB
Conventions used throughout
Blue text
a hardcoded input — you may edit these
Yellow fill
an input cell; everything else on the sheet is a formula
Black text
a formula — do not overtype these
Checks sheet
the printed figure beside the computed one, with a PASS or a FAIL
Why the checks matter more than the models
A workbook that agrees with a book proves nothing on its own — the author wrote both. What
the Checks sheets do is different: they force the model to reproduce, from a formula, a number
that was printed before the model existed.
On this book the discipline worked in the other direction repeatedly. The reference model went
through eight adversarial audit passes and carries a journal of
sixty corrections at the end of its source. Four of them reversed a conclusion
that had already been written on the page — including the one about the leases, where an
earlier version billed the rent twice and printed a headline of minus 19.8485 per cent because that
looked like the rigorous answer. One version was shipped with the proof of its own error printed in
its output file and unread, which is why the model now refuses to print at all if the year-one
bridge does not close, and refuses to print a sentence claiming a movement it does not compute.
The last two passes found no arithmetic error at all. What they found were sentences that were true
when they were written and false when they were read.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use
no macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks
to update links on opening, decline — there are none.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.