Investment Banking Project Profiles

Analysis of Acquisition Target Uncovers Unexpected Risk

After a pilot project, management of the M&A practice of a leading investment bank found itself intruiged by SDG's process for analyzing the value and risk drivers of acquisition transactions. But management was not yet ready to turn away from decades of experience in traditional analysis. Management commissioned another pilot, comparing SDG's approach with the bank's traditional approach in a head-to-head, real time analysis of a specific acquisition target.

Good Bank, Bad Bank

In the closing years of the 1980s, a large number of savings and loan institutions found themselves with an unusually high percentage of non-performing real estate loans. Conventional financial analysis was not sufficient. Without systematic and rigorous information about the risks and uncertainties inherent in the non-performing assets, no investors or buyers would consider purchasing the assets. Evocative of the subprime mortgage crisis of today, this period marked the beginning of a savings and loan crisis in the United States. Because these financial institutions did not want to be in the business of managing real-estate-owned (REO) properties, many took steps to establish a separate "liquidation bank" that would dispose of these non-performing assets. Financed by securities backed by the non-performing loans, the liquidation bank would buy the non-performing assets from the established bank.