Pignataro, Mergers, Acquisitions, Divestitures, and Other Restructurings

Paul Pignataro is a master at explaining complicated financial concepts. Earlier I reviewed his work on Financial Modeling and Valuation and Leveraged Buyouts. Now comes his third book in as many years: Mergers, Acquisitions, Divestitures, and Other Restructurings (Wiley, 2015).

Pignataro, the founder and CEO of the New York School of Finance, draws on both his teaching skills and his extensive experience in investment banking and private equity. As in his previous books, he first sets forth some general principles and then takes the reader step by step through a case study. He assumes no prior knowledge, not even of basic Excel coding. By the way, according to standard investment banking modeling etiquette, “all hardcoded numbers and assumption drivers should be entered in blue font” and “all formulas should be entered in black font.” (p. 58) (My own spreadsheets follow this etiquette insofar as they distinguish between hardcoded and formula-generated numbers, but my color choice, which I always considered tasteful, is outright garish by Wall Street standards. Oh well, I guess that’s what happens when you code in a flannel shirt and sweat pants instead of accepted Street attire. But I digress, something Pignataro is careful not to do.)

The case study for this book is the 2013 all-stock merger of equals transaction between OfficeMax and Office Depot, a consolidation in which OfficeMax became a wholly-owned subsidiary of Office Depot. This is a particularly timely case study since Staples has recently made a play for the merged company.

How would an analyst go about determining whether the OfficeMax-Office Depot merger makes sense? He would, Pignataro suggests, build a full-scale model consisting of eight parts: assumptions (purchase price, sources, and uses), income statement, cash flow statement, balance sheet adjustments, depreciation schedule, operating working capital schedule, balance sheet projections, and debt schedule. (The template for the model can be found on the book’s companion website, accessible through the url that appears at the end of the book.)

Pignataro holds the reader’s hand every step of the way. It’s impossible to get lost in this book. Ideas follow one upon another—if not inexorably, at least logically. And painstakingly described Excel keystrokes capture numbers critical to financial analysis. By the end of the book the reader has a full-scale model, a model he can use as a template for his own future work.