Methodologies for Vulture

1.Vultures are so named because they have a predilection for businesses that are dead or dying.
2. Whether a company is in bankruptcy, close to bankruptcy or heading down a road towards liquidation, it has a potential appeal for vultures.

Vulture’s Philosphy: Seek value at every stage of a company life cycle

• at one point, a company may be an under-valued growth stock using the “sale by appartment/split/spezzattino” approach.

• at one point a company can be an arbitrage opportunity.

Vulture’s Risks:

• If the company dies, vis can lose big.

• in order to reduce the risk you have to create a pre-packaged bankruptcy in which a creditors company agree on a reorganisation plan before the company files for bankruptcy.

• you basically limit your downside by putting a synthetic stop loss tool in place: the reorganization plan used during the “agreement” phase.

Vulture Investment Methodology:

• VI'S either invest in stocks or in other instruments that can be paid off first rank with the limited down side created by the rescue plan.

• Or invest only when the debtor is ready to file its reorganisation plan with the court (plan which identifies clearly defined recovery routes for bond holders and creditors of all sorts).

PHILOSOPHY

· Seek value at every stage of the Lifecycle

o At one point the company may be under valued growth stock

o AT one point, the company can be an arbitrage opportunity

QUALITATIVE

· Over leveraged

· Bakrupt or near the brink of Bakruptcy

· Sever crisis or downturn

· Asset (both tangible & intangible) is not a constraint but CF is a constraint

· Buy the asset at the discounted value & sell the CF Multiple

· Growth financed by external funds

QUANTITATIVE

· Write down Assets & Liabilities

· Issue of Convertibles

· Seeking credit

· Make EBITDA positive by cutting costs & improve efficiency

· Exit EBITDA Multiple

VULTURE VALUATION

· Valuing recap method

· APV method

In Nutshell:

Qualitative	Quantitative
Over leverage	Writing down assets and liability
Bankrupt or near bankruptcy	Issue of convertibles
Severe crisis down turn	Seeking credit concession
Cash flow constraint	Make EBITDA positive by cutting cost and improving efficiency.
Buy Asset at discounted value and sell on cash flow multiple