Week 0: Leveraged Buyout of Arcus Biosciences by Gilead, An Introduction and Background

Hi readers!

I’m Revant, and this will be the beginning of my adventure as I create a financial model to analyze a hypothetical leveraged buyout scenario, the acquisition of a company funded by a significant amount of debt. In this case study, we will analyze the feasibility of Gilead Sciences buying Arcus Biosciences. We will explore the synergies between the companies and identify the right levers for a buyout, and  create a model for a leveraged buyout with the optimal purchase price and terms of offer together with an extensive 5-year implementation plan. 

My passion for economics and finance has been a driving force in shaping my academic journey. It all began in my freshman year when I eagerly enrolled in both AP Macroeconomics and AP Microeconomics courses. These foundational classes ignited my interest in understanding the intricate workings of economic systems and the strategic decision-making processes that drive financial markets.

As I progressed through high school, I had the privilege of taking Principles of Economics with Professor John Taylor, the father of modern monetary policy. Learning from Professor Taylor, a trailblazer in the field, provided me with valuable insights into the intricacies of economic policy and its implications on both national and global scales. His teachings not only deepened my understanding of economic theories but also inspired me to explore the practical applications of these principles in the world of finance.

As I approach my senior year, I find myself immersed in the complex and dynamic world of corporate finance. This course has been a pivotal step in expanding my knowledge and honing my analytical skills. The blend of theoretical concepts and real-world case studies has equipped me with a comprehensive understanding of financial management within organizations.

Investors have been deploying capital since the dawn of the industrial revolution to make acquisitions of companies. Merchant bankers in London and Paris financed industrial concerns in the 1850s.  J. Pierpont Morgan’s J.P. Morgan & Co. would finance railroads and other industrial companies throughout the United States. In 1955 McLean Industries deal took place for $49 Million paving the way for PE industry evolution. In 1988 Safeway made waves with its $4.2 Billion buyout. Fast forward to Michael Dell and Silver Lake Management buyout of Dell for $21.5 Billion happened in 2013. The overall PE market is a trillion dollar industry with significant impact to the world economy. Arcus is a likely acquisition target for Gilead which is already highly invested in Arcus as its largest shareholder, and the two are already currently collaborating on strategic projects. 

This study will thus lay the foundation for a possible buyout by creating a quantitative model based on both strategic business and financial data, and is intended to serve as a quick-start LBO kit for students and industry workers to reference and develop for their particular use. 

Stay tuned for next week’s blog as we dive into the dynamic world of finance, acquisitions and leveraged buyouts!