Series 79 — Investment Banking Representative Exam Cheat Sheet

Last revised: September 28, 2026

Compact Series 79 Cheat sheet for valuation, offerings, M&A, restructuring, documents, and compliance decision points.

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Scope and study context

Item	Reference
Vendor/provider	FINRA
Official title	Series 79 — Investment Banking Representative Exam
Official code	Series 79
Page purpose	Independent quick-reference review for candidates preparing for the real exam
Core skill tested	Applying investment banking concepts to underwriting, mergers and acquisitions, tender offers, restructurings, valuation, due diligence, and securities law constraints

The Series 79 rewards candidates who can connect investment banking transaction mechanics with securities regulation. Many questions are not pure memorization; they ask what a banker, issuer, underwriter, buyer, seller, board, or investor should do next in a transaction setting.

Focus your final review on:

Transaction type recognition: IPO vs follow-on vs private placement vs tender offer vs merger vs restructuring.
Document and filing purpose: prospectus, proxy, registration statement, offering memorandum, fairness opinion, engagement letter, purchase agreement.
Valuation logic: enterprise value vs equity value, comparable companies vs precedent transactions vs DCF.
Capital structure and priority: debt, preferred, common, secured vs unsecured, distressed recoveries.
Regulatory triggers: public offering communications, underwriting conflicts, MNPI, research conflicts, restricted distributions, fairness opinions, customer communications.
Common exam traps: using the wrong denominator, confusing issuer proceeds with selling shareholder proceeds, treating accretion as value creation, or mixing private and public deal requirements.

Item	Review Point
Vendor/provider	FINRA
Official title	Series 79 — Investment Banking Representative Exam
Official code	Series 79
Core role tested	Investment banking representative activities involving financing, M&A, tender offers, restructurings, valuation, due diligence, and related regulation
Best review strategy	Learn transaction workflows, then drill questions by topic until you can identify the rule, document, calculation, or decision point quickly
Biggest candidate risk	Memorizing isolated definitions without recognizing the transaction context

Series 79 Thinking Pattern

For most scenario questions, ask:

What transaction is happening?
Offering, private placement, M&A, tender offer, fairness opinion, restructuring, research/communication issue, or conflict issue.
Who is acting?
Issuer, underwriter, investment banker, selling shareholder, acquirer, target, board, shareholder, creditor, analyst, institutional investor, or public customer.
What is the relevant document or communication?
Registration statement, prospectus, offering memorandum, proxy, tender offer materials, engagement letter, fairness opinion, research report, pitchbook, roadshow deck.
Is the information public or material nonpublic information?
If MNPI is involved, confidentiality, information barriers, restricted/watch lists, and trading restrictions become central.
Is there a distribution or public solicitation?
Public offerings, tender offers, proxy solicitations, and research/marketing communications trigger special rules.
Is there a conflict of interest?
Look for affiliated issuers, underwriting compensation, allocations, fairness opinion relationships, banker compensation, board conflicts, or research conflicts.

High-Yield Exam Lens

Series 79 questions often test whether you can choose the correct banking action, document, valuation method, or compliance response in a deal scenario.

If the question asks about…	Focus on…	Common trap
Public offering	Registration, prospectus, due diligence, underwriting, Regulation M, liability	Treating all offering communications as freely usable
Private placement	Exempt offering, investor qualification, resale restrictions, private placement memorandum	Confusing issuer exemption with investor resale exemption
M&A sale process	Confidentiality, CIM, IOIs/LOIs, diligence, definitive agreement, fairness	Assuming an LOI is always fully binding
Tender offer	Direct offer to shareholders, Schedule TO / target response, equal treatment concepts	Treating it like a negotiated merger vote
Valuation	Enterprise value, equity value, comps, precedent transactions, DCF, LBO	Mixing levered and unlevered cash flows
Restructuring	Seniority, liquidity, recovery, exchange offer, bankruptcy vs out-of-court	Ignoring priority of claims
Conflicts/MNPI	Information barriers, wall crossing, restricted list, research limits	Sharing client-sensitive information casually
Communications	Prospectus rules, retail communication review, tombstones, free writing prospectus concepts	Using pitch material as if it were a filed prospectus

Core Deal Workflow

    flowchart LR
	    A[Origination / Pitch] --> B[Engagement Letter]
	    B --> C[Due Diligence]
	    C --> D[Valuation / Structuring]
	    D --> E[Documentation]
	    E --> F[Marketing / Investor or Buyer Outreach]
	    F --> G[Negotiation / Pricing]
	    G --> H[Signing or Pricing]
	    H --> I[Closing / Settlement]
	    I --> J[Post-Closing Compliance / Stabilization / Integration]

Notes and examples

Stage	Banker work product	Exam emphasis
Pitch	Credentials, market update, valuation, process proposal	Pitch books are not offering documents
Engagement	Scope, fees, expenses, indemnification, conflicts	Defines banker role and compensation
Diligence	Business, financial, legal, accounting, tax, regulatory review	Due diligence supports disclosure and liability defense
Structuring	Security type, consideration, leverage, covenants, tax/accounting effects	Structure affects risk, valuation, and investor suitability
Marketing	Prospectus, CIM, roadshow, term sheet, management presentation	Different rules for public vs private communications
Execution	Bookbuilding, negotiations, definitive agreements, pricing	Allocation, conflicts, and fair dealing matter
Closing	Funds flow, legal opinions, comfort letters, bring-down diligence	Closing conditions must be satisfied or waived
After closing	Stabilization, filings, lock-ups, integration, covenant compliance	Post-deal obligations continue

Valuation Formula Sheet

Enterprise Value and Equity Value

\[ \text{Enterprise Value} = \text{Equity Value} + \text{Debt} + \text{Preferred Stock} + \text{Noncontrolling Interest} - \text{Cash and Cash Equivalents} \]\[ \text{Equity Value} = \text{Share Price} \times \text{Fully Diluted Shares Outstanding} \]

Concept	Use	Exam trap
Enterprise value	Value of operating assets independent of capital structure	Do not subtract debt from EV when calculating EV/EBITDA
Equity value	Value attributable to common equity holders	Must use fully diluted shares when applicable
Net debt	Debt minus cash	Excess cash may be treated differently from operating cash
Preferred stock	Usually added to EV if it is financing-like	Do not treat as common equity unless converted
Noncontrolling interest	Added to EV when financials consolidate less-than-100%-owned subsidiaries	Match numerator and denominator
Associates / equity investments	Often subtracted or separately valued if not in EBITDA	Avoid mismatching EV with consolidated vs unconsolidated earnings

Notes and examples

Fully Diluted Shares

Instrument	Dilution method	Key idea
Options / warrants	Treasury stock method	Assumes proceeds are used to repurchase shares
In-the-money options	Dilutive	Exercise price below current share price
Out-of-the-money options	Usually not dilutive	Exercise price above current share price
Convertible debt	If-converted method	Add shares; adjust earnings for after-tax interest if calculating diluted EPS
Convertible preferred	If-converted method	Add shares; adjust preferred dividends if relevant
Restricted stock / RSUs	Treated as shares or diluted shares depending on vesting/accounting facts	Read the scenario wording carefully

Treasury stock method:

\[ \text{Net New Shares} = \text{Options} - \frac{\text{Options} \times \text{Exercise Price}}{\text{Current Share Price}} \]

Comparable Companies Analysis

Step	Action	High-yield note
1	Select comparable public companies	Similar industry, size, growth, margins, geography, cyclicality
2	Normalize financials	Remove nonrecurring items; align fiscal years
3	Calculate trading multiples	EV/Revenue, EV/EBITDA, EV/EBIT, P/E
4	Apply selected multiple range	Use judgment; do not blindly average
5	Derive implied EV or equity value	Convert EV to equity value if needed
6	Divide by shares	Use fully diluted shares for per-share value

Multiple	Numerator	Denominator	Best used when
EV/Revenue	Enterprise value	Revenue	Early-stage, low-profit, margin differences require caution
EV/EBITDA	Enterprise value	EBITDA	Common for operating businesses; ignores capex and working capital
EV/EBIT	Enterprise value	EBIT	Useful when D&A/capital intensity matters
P/E	Equity value	Net income	Equity-focused; affected by capital structure
P/BV	Equity value	Book value	Financial institutions, asset-heavy businesses
Price / NAV	Equity value	Net asset value	Real estate, investment companies, natural resources

Precedent Transactions Analysis

Feature	Precedent transactions	Public trading comps
Value basis	Control value	Minority trading value
Includes control premium?	Usually yes	Usually no
Market condition sensitivity	Reflects deal market at announcement	Reflects current trading market
Data quality	Often limited by disclosure	Usually better for public companies
Best use	M&A value range	Current market valuation benchmark
Trap	Old or strategic deals may not be comparable	Market prices may reflect temporary dislocation

Discounted Cash Flow

Unlevered free cash flow:

\[ \text{UFCF} = \text{EBIT} \times (1 - \text{Tax Rate}) + \text{D\&A} - \text{Capex} - \Delta \text{NWC} \]

Enterprise value using DCF:

\[ \text{Enterprise Value} = \sum_{t=1}^{n} \frac{\text{UFCF}_t}{(1+\text{WACC})^t} + \frac{\text{Terminal Value}}{(1+\text{WACC})^n} \]

Perpetuity growth terminal value:

\[ \text{Terminal Value} = \frac{\text{UFCF}_{n+1}}{\text{WACC} - g} \]

Exit multiple terminal value:

\[ \text{Terminal Value} = \text{Exit Multiple} \times \text{Final Year Metric} \]

WACC:

\[ \text{WACC} = \frac{E}{D+E}R_e + \frac{D}{D+E}R_d(1-T) \]

CAPM cost of equity:

\[ R_e = R_f + \beta(R_m - R_f) \]

DCF item	Correct treatment	Common trap
UFCF	Cash flow available to all capital providers	Do not subtract interest expense
WACC	Discount rate for unlevered cash flow	Do not use cost of equity for UFCF
Levered FCF	Cash flow after interest and debt repayment	Discount with cost of equity, not WACC
Terminal growth	Must be less than WACC in perpetuity formula	Unrealistic growth creates distorted value
Capex	Cash outflow	Do not ignore maintenance capex
NWC increase	Cash outflow	Inventory/receivables growth consumes cash
D&A	Added back because noncash	But capex may more than offset it

LBO Cheat Sheet

LBO driver	Effect on sponsor return
Lower purchase price	Increases return
Higher exit multiple	Increases return
Higher leverage, if sustainable	Increases equity return but raises risk
Faster debt paydown	Increases equity value at exit
EBITDA growth	Increases enterprise value and debt capacity
Lower capex / working capital needs	Improves cash flow for debt repayment
Higher interest rates	Reduces cash flow and return

Basic sponsor equity return:

\[ \text{MOIC} = \frac{\text{Exit Equity Value}}{\text{Initial Sponsor Equity}} \]\[ \text{Exit Equity Value} = \text{Exit Enterprise Value} - \text{Net Debt at Exit} \]

LBO exam issue	Rule of thumb
Uses debt to finance acquisition	Target cash flow supports debt service
Sponsor return depends on equity value, not just EV	Debt reduction is a major source of value
Management rollover	Aligns management with sponsor
Dividend recap	Sponsor extracts cash by adding or refinancing debt
Covenant breach risk	Higher leverage reduces flexibility

Financial Statement and Ratio Reference

Income Statement, EBITDA, and Cash Flow

Metric	Calculation / meaning	Use
Gross profit	Revenue minus cost of goods sold	Product/service margin
EBITDA	EBIT plus depreciation and amortization	Operating proxy before capital structure and noncash D&A
EBIT	Earnings before interest and taxes	Operating income after D&A
EBT	Earnings before tax	After interest expense
Net income	Bottom-line earnings to equity holders	EPS, P/E, retained earnings
Operating cash flow	Cash generated by operations	Includes working capital effects
Free cash flow	Cash available after capex	Debt repayment, dividends, valuation

Notes and examples

Balance Sheet Links

Change	Cash impact	Reason
Accounts receivable increases	Cash decreases	Revenue not yet collected
Inventory increases	Cash decreases	Cash tied in inventory
Accounts payable increases	Cash increases	Expenses not yet paid
Accrued expenses increase	Cash increases	Expense recognized before cash payment
Deferred revenue increases	Cash increases	Cash received before revenue recognized
Debt increases	Cash increases	Financing inflow
Debt repayment	Cash decreases	Financing outflow

Core Credit and Operating Ratios

Ratio	Plain-text formula	Interpretation
Gross margin	Gross profit / revenue	Product or service profitability
EBITDA margin	EBITDA / revenue	Operating profitability before D&A
Net margin	Net income / revenue	Bottom-line profitability
Debt / EBITDA	Total debt / EBITDA	Leverage
Net debt / EBITDA	Net debt / EBITDA	Leverage net of cash
EBITDA / interest	EBITDA / interest expense	Interest coverage
EBIT / interest	EBIT / interest expense	Stricter interest coverage
Current ratio	Current assets / current liabilities	Short-term liquidity
Quick ratio	Cash + marketable securities + receivables, divided by current liabilities	More conservative liquidity
ROE	Net income / average equity	Equity profitability
ROA	Net income / average assets	Asset efficiency
Asset turnover	Revenue / average assets	Revenue generated per asset dollar

M&A Cheat Sheet

Transaction Structure Matrix

Structure	Buyer acquires	Seller liability transfer	Shareholder approval issues	Typical use
Stock purchase	Shares of target	Target liabilities remain in target	Target shareholder consent required	Private company sale or control acquisition
Asset purchase	Selected assets and liabilities	Buyer can choose assumed liabilities, subject to law and contract	May require seller approval depending on significance	Carve-outs, liability isolation
Merger	Target merges with buyer or subsidiary	Liabilities generally remain with surviving entity	Board and shareholder approvals may apply	Public company acquisitions
Tender offer	Shares directly from shareholders	Buyer seeks control by buying shares	Target board response important	Public company acquisition, including hostile deals
Reverse triangular merger	Buyer sub merges into target; target survives	Target contracts may remain more intact, subject to change-of-control clauses	Often used for public and private targets	Preserve target entity
Forward merger	Target merges into buyer or buyer sub	Target entity disappears	May affect contracts/licenses	Integration-focused acquisitions

Notes and examples

Consideration Choices

Consideration	Buyer effect	Seller effect	Exam trap
Cash	Certainty of value; uses cash or debt	Immediate liquidity	May increase buyer leverage
Stock	Preserves buyer cash	Seller shares future upside/downside	Exchange ratio matters
Fixed exchange ratio	Shares fixed; value floats with buyer stock price	Market risk to seller	Not the same as fixed value
Fixed value collar	Attempts to stabilize value	Adjusts shares within range	Collar terms are deal-specific
Earnout	Defers value based on performance	Bridges valuation gap	Can create disputes over control/accounting
Seller note	Deferred payment obligation	Credit exposure to buyer	Often subordinate to senior financing
Rollover equity	Seller retains ownership	Aligns interests	Illiquidity and minority rights matter

Public M&A Documents

Document	Used in	Purpose
Merger agreement	Negotiated merger	Definitive contract: price, covenants, reps, conditions, termination
Proxy statement	Shareholder vote	Provides disclosure for vote
Registration statement / prospectus	Stock consideration issuance	Registers buyer shares if required
Tender offer materials	Tender offer	Offer terms and bidder disclosure
Target recommendation statement	Tender offer	Target board position and reasons
Fairness opinion	Board process	Financial advisor opinion on fairness from a financial point of view
Confidentiality agreement	Early M&A process	Protects nonpublic information
CIM	Auction process	Detailed selling document for bidders
LOI / indication of interest	Early bid stage	Nonbinding or partially binding proposal terms

M&A Agreement Provisions

Provision	What it does	High-yield point
Representations and warranties	Statements of fact by parties	Breach may trigger indemnity or closing failure
Covenants	Promises to do or not do something	Interim operating covenants restrict target actions
Conditions precedent	Must be satisfied before closing	Financing conditions shift risk
MAC / MAE clause	Allows exit for severe adverse changes	Usually heavily negotiated
Indemnification	Allocates post-closing losses	Survival periods, caps, baskets are key
Escrow / holdback	Secures indemnity claims	Reduces seller cash at closing
No-shop	Limits seller solicitation of other bids	Fiduciary-outs may permit superior proposals
Break-up fee	Fee payable if deal terminates in specified cases	Must not improperly preclude better bids
Bring-down certificate	Confirms reps remain true at closing	Closing diligence issue

Capital Markets and Securities Offerings

Offering Type Decision Table

Offering	Buyers	Disclosure	Resale	Banker focus
Registered public offering	Public investors	Registration statement and prospectus	Generally freely tradable after issuance	Due diligence, underwriting, prospectus delivery/communications
IPO	First public equity sale	Extensive registration disclosure	Public trading after offering, subject to lock-ups and restrictions	Roadshow, bookbuilding, pricing, syndicate
Follow-on offering	Already-public issuer	Updated public disclosure	Public trading	Market risk, dilution, Regulation M
Shelf takedown	Securities issued from shelf registration	Base prospectus plus supplement	Public trading	Speed and eligibility
Private placement	Limited investor base	Private offering materials	Restricted securities	Investor qualification, exemption, placement process
Rule 144A-style institutional resale	Institutional market	Offering memorandum	Resales limited to eligible institutional buyers	Liquidity vs public registration
PIPE	Private investment in public equity	Private placement plus public company disclosure	Often registration rights	Pricing discount, resale registration
Rights offering	Existing shareholders	Offering document	Depends on structure	Anti-dilution / shareholder participation
At-the-market offering	Sales into market over time	Program documentation	Public trading	Market impact and agency execution

Notes and examples

Underwriting Structures

Structure	Banker obligation	Issuer risk	Banker risk
Firm commitment	Underwriter buys from issuer and resells	Execution more certain	Inventory/market risk
Best efforts	Banker attempts to sell, no full purchase commitment	More execution risk	Lower inventory risk
Mini-max / all-or-none concepts	Offering closes only if conditions met	Proceeds uncertainty until condition met	Must follow stated terms
Bought deal	Underwriter commits before broad marketing	Fast execution	High market risk
Syndicated underwriting	Multiple banks share distribution	Broader distribution	Allocation and role issues

Equity vs Debt vs Hybrid Securities

Security	Investor return	Issuer effect	Key risk
Common stock	Dividends and price appreciation	Permanent equity; dilutive	Lowest priority in liquidation
Preferred stock	Preferred dividend and seniority to common	Equity or hybrid treatment	Dividend restrictions, redemption terms
Investment-grade debt	Interest and principal	Lower cost if credit strong	Interest and refinancing risk
High-yield debt	Higher coupon	More flexible than equity but costly	Covenants and default risk
Convertible debt	Coupon plus conversion option	Lower coupon, potential dilution	Conversion and call features
Warrants	Option-like upside	Sweetener to financing	Dilution
Mezzanine debt	Subordinated debt, often with equity upside	Flexible capital	Higher cost and subordination

Debt Covenant Reference

Covenant type	Example	Purpose
Affirmative covenant	Provide financial statements, maintain insurance	Requires action
Negative covenant	Limits debt, liens, dividends, asset sales	Restricts risk-increasing behavior
Financial maintenance covenant	Maintain leverage or coverage ratio	Ongoing compliance test
Incurrence covenant	Restricts actions unless test met	Common in high-yield style debt
Change of control	Repurchase or default trigger	Protects lenders from ownership change
Restricted payments	Limits dividends, buybacks, junior debt payments	Preserves credit support
Asset sale covenant	Controls use of sale proceeds	Prevents collateral leakage

Securities Law and Compliance Cheat Sheet

Registration and Exemption Concepts

Concept	Practical meaning	Exam point
Securities Act registration	Required absent exemption for securities offers/sales	Focuses on primary issuance disclosure
Exempt offering	Issuer avoids public registration if conditions met	Securities may still be restricted
Restricted securities	Acquired in unregistered transactions	Resale limitations matter
Control securities	Held by affiliates/control persons	Resale restrictions can apply even if securities were registered
General solicitation	Public marketing of private offering	Permitted only under certain exemption paths
Accredited / institutional investors	Investor qualification concepts	Suitability and exemption conditions depend on investor type
Integration	Multiple offerings may be treated as one	Avoid structuring around registration rules improperly

Notes and examples

Public Offering Communication Categories

Communication	Purpose	Trap
Prospectus	Statutory disclosure document	Must be accurate and not misleading
Preliminary prospectus / red herring	Marketing before final pricing	Does not include final price terms
Final prospectus	Final offering terms	Delivery/access rules are important
Free writing prospectus concept	Written offer outside statutory prospectus	Filing/legend/use conditions may apply
Tombstone ad	Limited announcement	Not a full sales document
Research report	Analyst communication	Subject to independence and conflict rules
Roadshow	Investor presentation	Content must align with disclosure record

Regulation M and Market Conduct

Topic	Practical rule
Distribution participants	Underwriters and related parties face trading restrictions during distributions
Restricted period	Designed to prevent manipulation around an offering
Stabilization	Permitted only under specific conditions and disclosure requirements
Penalty bids	May discourage flipping when properly used
Passive market making	Limited market activity may be permitted under conditions
Exam trap	Do not assume underwriters can freely support the stock price during an offering

MNPI, Insider Trading, and Information Barriers

Situation	Correct response
Banker receives material nonpublic information	Keep confidential; share only on need-to-know basis
Public-side employee needs private-side information	Wall-crossing procedures required
Client asks banker to trade before announcement	Do not trade on MNPI; escalate to compliance
Bank has advisory role and trading desk activity	Restricted/watch list and information barrier controls may apply
Research analyst involved in banking pitch	Be alert to independence and conflict restrictions
Rumor or leak	Escalate internally; do not selectively confirm MNPI

Term	Meaning
Material	Reasonable investor would consider it important
Nonpublic	Not broadly disseminated to the market
Need-to-know	Access limited to those required for the mandate
Wall crossing	Controlled process to bring a person over an information barrier
Restricted list	Limits or prohibits trading/research due to MNPI or conflicts
Watch list	Internal monitoring list, usually confidential

Liability and Due Diligence

Liability area	Applies to	Core idea
Material misstatement or omission	Offering and market communications	Disclosure must not mislead
Due diligence defense	Underwriters and other parties in registered offerings	Reasonable investigation supports defense
Control person liability	Persons with control influence	Supervisory/control role can matter
Anti-fraud rules	Securities transactions broadly	Fraudulent or deceptive conduct prohibited
Selective disclosure risk	Public company communications	Avoid favored disclosure to select investors

FINRA Conduct Themes

Theme	Candidate should recognize
Fair dealing	Communications and recommendations must be fair and not misleading
Suitability / investor appropriateness	Especially relevant in private placements and complex products
Conflicts of interest	Disclose and manage banker, issuer, affiliate, and compensation conflicts
Supervision	Firm procedures and approvals matter
Recordkeeping	Communications, approvals, and diligence files must be retained under firm rules
Gifts, entertainment, political contributions	Restrictions may affect public finance and institutional relationships
AML / KYC	Customer identity and suspicious activity escalation are compliance responsibilities

Restructuring and Distressed Situations

Capital Structure Priority

Claim	Typical priority concept
Secured debt	Claim supported by collateral
Senior unsecured debt	Senior contractual claim without specific collateral
Subordinated debt	Paid after senior claims
Preferred equity	Senior to common, junior to debt
Common equity	Residual claim, highest risk

Notes and examples

Restructuring Alternatives

Alternative	Description	When used
Amend and extend	Modify covenants/maturity	Temporary liquidity issue
Refinancing	Replace existing debt	Market access available
Exchange offer	Swap old securities for new securities	Reduce debt, extend maturities, or change terms
Consent solicitation	Seek holder approval to amend terms	Need covenant relief
Asset sale	Sell assets to raise liquidity	Noncore assets or strategic sale
Out-of-court restructuring	Negotiated solution without court process	Creditor support sufficient
Bankruptcy process	Court-supervised restructuring or liquidation	Liquidity, creditor conflict, or legal protection needed
DIP financing concept	Financing during bankruptcy process	Provides operating liquidity with court oversight

Recovery Analysis

Factor	Effect on recovery
Collateral value	Higher collateral improves secured recovery
Senior debt amount	More senior claims reduce junior recovery
Enterprise value	Higher reorganization value improves recoveries
Administrative and priority claims	Reduce value available to creditors
Intercreditor agreement	Determines rights among creditor classes
Going-concern vs liquidation value	Going-concern may exceed liquidation value, but not always

Deal Documents Reference

Document	Deal type	Purpose
Engagement letter	Banking mandate	Scope, fees, indemnity, conflicts, termination
NDA / confidentiality agreement	M&A, private placements	Protects nonpublic information
Teaser	M&A sale process	Anonymous summary to gauge interest
CIM	M&A sale process	Detailed confidential business description
Management presentation	M&A / financing	Management-led investor or buyer presentation
Indication of interest	M&A auction	Preliminary nonbinding valuation and terms
Letter of intent	M&A negotiation	Key terms; may include binding confidentiality/exclusivity
Definitive purchase agreement	M&A	Binding transaction contract
Fairness opinion	M&A board process	Financial fairness analysis, not legal advice
Registration statement	Public offering	SEC-filed disclosure for registered securities
Prospectus	Public offering	Investor disclosure and sales document
Underwriting agreement	Public offering	Issuer-underwriter contract
Lock-up agreement	IPO/follow-on	Restricts insider or shareholder sales
Comfort letter	Public offering	Auditor procedures on financial information
Legal opinion	Closing	Counsel opinion on specified legal matters
Blue sky memorandum	Securities offering	State securities law reference
Placement agent agreement	Private placement	Banker role in private sale
Subscription agreement	Private placement	Investor purchase agreement and representations
Term sheet	Financing	Summary of economic and legal terms
Indenture	Debt offering	Bond contract and covenants
Credit agreement	Loan financing	Loan terms, covenants, events of default

Accounting, Tax, and Purchase Price Concepts

Concept	Practical meaning	Exam relevance
Cash-free, debt-free purchase price	Seller keeps cash and repays debt unless otherwise negotiated	Common M&A pricing convention
Working capital peg	Target level of working capital at closing	Purchase price adjustment mechanism
Purchase accounting	Buyer records acquired assets/liabilities at fair value	Creates goodwill or bargain purchase effects
Goodwill	Purchase price above fair value of identifiable net assets	Tested for impairment
Deferred tax asset	Future tax benefit	Valuation allowance may reduce usefulness
Deferred tax liability	Future tax obligation	Often arises from book-tax differences
NOLs	Tax losses that may offset future taxable income	Use can be limited after ownership changes
Accretion	Transaction increases buyer EPS	Not the same as value creation
Dilution	Transaction decreases buyer EPS	May still be strategically attractive
Synergies	Revenue enhancement or cost savings	Must assess timing, certainty, and implementation cost

Notes and examples

Accretion / Dilution Framework

Step	Action
1	Start with buyer standalone net income
2	Add target net income
3	Add after-tax synergies if included
4	Subtract after-tax lost interest on cash used
5	Subtract after-tax interest on new debt
6	Subtract new preferred dividends if applicable
7	Add or subtract acquisition accounting effects
8	Divide by new pro forma shares
9	Compare pro forma EPS to buyer standalone EPS

\[ \text{EPS} = \frac{\text{Net Income Available to Common Shareholders}}{\text{Weighted Average Diluted Shares}} \]

Financing method	EPS effect
Cash	Reduces interest income; no new shares
Debt	Adds interest expense; no new shares
Stock	Adds shares; dilution depends on buyer P/E vs target contribution
Mix of cash/debt/stock	Combined effect; read assumptions

Common Scenario Traps

Scenario wording	Better exam interpretation
“The banker believes the company is undervalued based on EBITDA.”	Determine whether EV/EBITDA or equity multiple is appropriate before answering
“The issuer wants to avoid registration.”	Identify the exemption and resale limitations
“The buyer offers stock worth a fixed dollar amount.”	This is not the same as a fixed exchange ratio
“The bank has MNPI but the trading desk wants to make a market.”	Think information barriers, restricted list, Regulation M, and compliance escalation
“The fairness opinion says the deal is fair.”	Fair from a financial point of view; not a guarantee, recommendation, or legal opinion
“A private placement investor wants to resell immediately.”	Restricted securities and resale rules matter
“The target has high EBITDA but heavy capex.”	EBITDA may overstate cash generation
“The transaction is accretive.”	Accretion does not prove economic value creation
“Comparable companies trade at lower multiples.”	Consider growth, margins, risk, size, and market timing
“The sponsor can add more debt.”	Debt capacity is limited by cash flow, covenants, and market appetite

Fast Decision Checklist

Valuation

Are you valuing enterprise value or equity value?
Are the cash flows levered or unlevered?
Does the discount rate match the cash flow?
Are multiples applied to the correct metric?
Are financials normalized for nonrecurring items?
Are minority interest, cash, debt, preferred stock, and associates treated consistently?
Are synergies included only when the question supports them?

Notes and examples

Offering

Registered or exempt?
Primary issuance, secondary sale, or resale?
Public investors, accredited investors, or institutional buyers?
Firm commitment or best efforts?
What document controls: prospectus, offering memorandum, term sheet, or subscription agreement?
Are communications restricted by offering rules?
Is Regulation M relevant?

M&A

Stock purchase, asset purchase, merger, or tender offer?
Cash, stock, debt, earnout, rollover, or mixed consideration?
Friendly or hostile?
Public or private target?
Is shareholder approval required?
Are there fiduciary, disclosure, fairness, or conflict issues?
Are tax, accounting, financing, and regulatory approvals conditions to closing?

Compliance

Is there material nonpublic information?
Who is allowed to know it?
Is the firm on both advisory and trading sides?
Has compliance approved the communication or wall crossing?
Could the communication be misleading or incomplete?
Are conflicts disclosed and managed?
Is the investor type appropriate for the product or exemption?

Transaction Lifecycle Map

    flowchart LR
	    A[Client Need] --> B[Engagement / Mandate]
	    B --> C[Due Diligence & Data Collection]
	    C --> D[Financial Analysis & Valuation]
	    D --> E[Transaction Structure]
	    E --> F{Transaction Type}
	    F --> G[Financing / Offering]
	    F --> H[M&A / Tender Offer]
	    F --> I[Restructuring]
	    G --> J[Documentation, Marketing, Pricing]
	    H --> K[Negotiation, Disclosure, Approvals]
	    I --> L[Creditor Process, Exchange, Sale, or Reorganization]
	    J --> M[Closing / Settlement]
	    K --> M
	    L --> M
	    M --> N[Post-Closing Obligations & Records]

High-Yield One-Page Checklist

Data Collection and Analysis

Know the purpose of:

Annual, quarterly, and current reports.
Proxy statements.
Registration statements and prospectuses.
Offering memoranda for private placements.
Merger agreements and purchase agreements.
Tender offer materials.
Fairness opinions and board materials.
Credit agreements, indentures, and covenant packages.
Capitalization tables and debt schedules.
Management projections and diligence materials.

Notes and examples

Valuation and Financial Modeling

Be fluent with:

Enterprise value vs equity value.
Fully diluted shares.
EBITDA, EBIT, net income, free cash flow.
Comparable company multiples.
Precedent transaction multiples.
Discounted cash flow.
Accretion/dilution analysis.
Leveraged buyout logic.
Recovery and liquidation analysis.
Premiums paid and exchange ratios.

Underwriting and New Financing

Recognize:

IPOs, follow-ons, shelf offerings, private placements, Rule 144A-style institutional offerings, rights offerings, and debt offerings.
Firm commitment, best efforts, standby, and all-or-none-style offering logic.
Managing underwriter, syndicate, selling group, issuer, selling shareholders, counsel, accountants, transfer agent, trustee.
Registration, due diligence, roadshow, pricing, allocation, closing, stabilization, and aftermarket issues.
Public communications and research conflicts.

M&A, Tender Offers, and Restructuring

Know:

Stock purchase, asset purchase, statutory merger, tender offer, spin-off, divestiture, leveraged buyout, going-private transaction.
Sell-side vs buy-side process.
Cash vs stock vs mixed consideration.
Board duties, fairness opinions, conflicts, and disclosure.
Proxy solicitation vs tender offer mechanics.
Debt priority, exchange offers, consent solicitations, DIP financing, bankruptcy sales, and restructuring alternatives.

Regulation and Conduct

Prioritize:

Securities Act vs Exchange Act concepts.
SEC disclosure framework.
FINRA rules affecting underwriting, conflicts, communications, allocations, and fairness opinions.
Insider trading and MNPI.
Information barriers and restricted/watch lists.
Reg FD-style selective disclosure concerns.
Research independence.
Recordkeeping and supervision.

Core Documents and What They Tell You

Document / Source	What It Helps You Answer	Exam Trap
Annual report / Form 10-K-style filing	Audited financials, business description, risk factors, MD&A, controls	Do not treat it as current if a later event materially changed the company
Quarterly report / Form 10-Q-style filing	Interim results, liquidity, trends, recent updates	Unaudited interim numbers may need annualization or seasonality adjustment
Current report / Form 8-K-style filing	Material events, acquisitions, leadership changes, financings	Material events can alter valuation and disclosure obligations
Proxy statement	Voting matters, compensation, governance, related-party issues, merger vote materials	Proxy issues often involve shareholder approval and solicitation rules
Registration statement	Disclosure for registered securities offering	It is broader than the prospectus and includes filed exhibits
Preliminary prospectus	Marketing-stage disclosure before final pricing	Pricing and final terms may be incomplete
Final prospectus	Final offering disclosure after pricing	Do not use preliminary terms if final terms are provided
Offering memorandum	Private offering disclosure	Not the same as a registered public prospectus
Confidential information memorandum	Sell-side M&A marketing document	Usually distributed under NDA; not a public disclosure document
Engagement letter	Banker’s role, scope, compensation, indemnity, conflicts	Does not replace regulatory disclosure obligations
Fairness opinion	Financial fairness from a specified perspective	It is not a legal opinion, tax opinion, or guarantee of best price
Credit agreement / indenture	Debt terms, covenants, liens, maturities, defaults	Distinguish maintenance covenants from incurrence covenants
Management projections	Forecast basis for DCF and deal analysis	High sensitivity to assumptions; not historical fact

Due Diligence Categories

Category	Typical Questions
Business diligence	What does the company sell, who are customers, what drives revenue, what are competitive advantages?
Financial diligence	Are historical results reliable, recurring, and comparable? What adjustments are needed?
Legal diligence	Are there material contracts, litigation, regulatory issues, liens, or consent requirements?
Tax diligence	Are there tax attributes, transaction tax costs, or structure-driven tax consequences?
Operational diligence	Are there supply chain, technology, labor, capacity, or integration risks?
Commercial diligence	What is market size, growth, customer retention, pricing power, and competitive threat?
Environmental / regulatory diligence	Are there permits, compliance costs, or contingent liabilities?
Capital structure diligence	What debt, preferred equity, options, warrants, convertible securities, or off-balance-sheet obligations exist?

Accounting Relationships Candidates Miss

Concept	Cheat Sheet	Common Mistake
Revenue	Top-line sales before expenses	Treating revenue growth as profit growth
Gross profit	Revenue minus cost of goods sold	Ignoring margin compression
EBITDA	Earnings before interest, taxes, depreciation, amortization	Treating EBITDA as cash flow without considering capex and working capital
EBIT	Operating income before interest and taxes	Confusing EBIT with EBITDA
Net income	Profit after interest, taxes, and other items	Using net income for enterprise value multiples
Operating cash flow	Cash generated from operations	Ignoring changes in working capital
Free cash flow	Cash available after operating needs and capital expenditures	Forgetting capex or taxes
Working capital	Current assets minus current liabilities	Cash and debt may be excluded in transaction-specific definitions
Depreciation	Non-cash expense reducing accounting income	It affects taxes, but is added back in cash flow calculations
Deferred revenue	Cash received before revenue is recognized	Can be a liability and a source of cash
Goodwill	Acquisition premium over identifiable net assets	Impairment affects earnings but not immediate cash flow

Enterprise Value vs Equity Value

This is one of the most important Series 79 calculation areas.

\[ \text{Enterprise Value} = \text{Equity Value} + \text{Debt} + \text{Preferred Equity} + \text{Noncontrolling Interest} - \text{Cash and Cash Equivalents} \]

Use enterprise value for metrics available to all capital providers, such as revenue, EBITDA, and EBIT. Use equity value for metrics available to common shareholders, such as net income and EPS.

Numerator	Denominator	Usually Appropriate?	Why
Enterprise value	Revenue	Yes	Revenue is before payments to debt and equity holders
Enterprise value	EBITDA	Yes	EBITDA is capital-structure neutral
Enterprise value	EBIT	Yes	EBIT is before interest
Equity value	Net income	Yes	Net income is after interest and belongs to equity
Share price	EPS	Yes	Per-share equity metric
Enterprise value	Net income	Usually no	Mismatches all-capital value with equity-only earnings
Equity value	EBITDA	Usually no	Mismatches equity value with all-capital operating earnings

Common instruments affecting diluted shares:

Options.
Warrants.
Restricted stock units.
Convertible debt.
Convertible preferred stock.
In-the-money equity-linked instruments.

Exam mindset:

If options or warrants are in the money, consider treasury stock method logic.
If convertibles are economically likely to convert or are treated as converted in the prompt, include shares and adjust debt/preferred as needed.
Do not double count convertibles as both debt/preferred and converted equity unless the analysis requires a specific treatment.

Valuation Methods Cheat Sheet

Method	Best Used For	Key Inputs	Strength	Weakness / Trap
Comparable company analysis	Public-company market valuation	Peer group, trading multiples, financial metrics	Market-based and current	Peer selection can distort results
Precedent transaction analysis	M&A control valuation	Prior deals, transaction multiples, premiums	Captures control premiums and deal dynamics	Older deals may reflect different market conditions
Discounted cash flow	Intrinsic value based on projections	Forecast free cash flow, discount rate, terminal value	Company-specific and cash-flow based	Highly sensitive to assumptions
Leveraged buyout analysis	Sponsor acquisition feasibility	Purchase price, debt capacity, exit multiple, returns	Tests financial sponsor bid capacity	Not necessarily fair market value
Sum-of-the-parts	Diversified or multi-segment companies	Segment multiples or DCFs	Useful when segments have different profiles	Segment allocation assumptions matter
Liquidation analysis	Distressed or wind-down scenario	Asset recoveries, claims, costs	Establishes downside recovery	Going-concern value may be higher
Replacement cost	Asset-heavy businesses	Cost to rebuild assets	Useful for certain infrastructure or hard-asset sectors	May ignore earnings power

DCF Core Formula Review

Unlevered DCF values the enterprise by discounting free cash flows available to all capital providers.

\[ \text{Enterprise Value} = \sum_{t=1}^{n} \frac{\text{Unlevered Free Cash Flow}_{t}}{(1+\text{WACC})^{t}} + \frac{\text{Terminal Value}}{(1+\text{WACC})^{n}} \]

A common WACC structure is:

\[ \text{WACC} = \left(\frac{E}{D+E}\right)R_e + \left(\frac{D}{D+E}\right)R_d(1-T) \]

Where \(E\) is equity value, \(D\) is debt value, \(R_e\) is cost of equity, \(R_d\) is cost of debt, and \(T\) is tax rate.

DCF Decision Rules

Issue	Correct Thinking
Use levered or unlevered cash flow?	Unlevered cash flow is discounted at WACC to estimate enterprise value; levered cash flow is discounted at cost of equity to estimate equity value
Terminal value too large?	Small changes in terminal assumptions can dominate the valuation
Beta source?	Usually derived from comparable public companies and adjusted for capital structure
Tax rate	Use an appropriate normalized tax assumption if instructed
Capex vs depreciation	Depreciation is non-cash; capex is cash outflow
Working capital	Increases in working capital usually consume cash
Debt repayment	Excluded from unlevered free cash flow; included in levered cash flow
Synergies	Include only if the valuation perspective and prompt support them

Accretion / Dilution Review

Accretion/dilution asks whether an acquisition increases or decreases the buyer’s EPS.

Driver	Accretive Pressure	Dilutive Pressure
Cash consideration	Loss of interest income, but no new shares	Large cash use can reduce earnings
Debt consideration	No new shares	Interest expense reduces net income
Stock consideration	Preserves cash	New shares increase denominator
Target earnings	Higher target earnings support accretion	Low or negative target earnings can dilute
Synergies	Cost savings or revenue benefits support accretion	Unrealistic synergies can mislead
Purchase accounting	Amortization and transaction effects can reduce earnings	Ignoring these can overstate accretion

Important trap: Accretion does not automatically mean value creation. A deal can be EPS-accretive but strategically poor or value-destructive.

Offering Types

Offering Type	What It Is	Key Exam Point
IPO	First registered public sale of issuer equity	New public disclosure, roadshow, pricing, allocation, aftermarket issues
Follow-on offering	Additional public equity sale by already-public company	May involve primary shares, secondary shares, or both
Primary offering	Issuer sells securities and receives proceeds	Proceeds go to company
Secondary offering	Existing holders sell securities	Proceeds go to selling shareholders
Shelf offering	Securities registered in advance for later takedowns	Flexibility for seasoned issuers
Private placement	Securities sold without public registration under an exemption	Investor qualification and resale restrictions are central
Institutional resale-style offering	Securities placed with large institutional buyers	Focus on eligible investors, offering memorandum, resale framework
Rights offering	Existing shareholders receive rights to buy additional shares	Can reduce dilution concerns
Debt offering	Issuer sells notes, bonds, or other debt	Focus on coupon, maturity, covenants, ranking, ratings
Convertible offering	Debt or preferred convertible into common equity	Combines credit and equity features
Preferred stock offering	Equity-like security with preference features	Dividends, liquidation preference, convertibility, voting rights

Firm Commitment vs Best Efforts

Structure	Banker / Underwriter Role	Risk Allocation
Firm commitment	Underwriter purchases securities from issuer and resells to investors	Underwriter bears distribution risk
Best efforts	Banker acts as agent to sell securities	Issuer bears more risk if securities are not sold
Standby underwriting	Underwriter agrees to purchase unsubscribed securities, often in rights offering context	Underwriter backstops offering
All-or-none-style structure	Offering must meet a specified sale condition to proceed	Investor funds and closing depend on condition satisfaction
Mini-max-style structure	Offering proceeds if minimum is sold, up to maximum	Minimum threshold is key

Underwriting Participants

Participant	Role
Issuer	Company selling securities
Selling shareholder	Existing holder selling shares
Managing underwriter / bookrunner	Leads offering, diligence, marketing, allocation, pricing
Co-manager	Supports distribution and execution
Underwriting syndicate	Group sharing underwriting and distribution responsibilities
Selling group	Assists sales without full underwriting commitment
Issuer’s counsel	Advises issuer and drafts issuer-side disclosure
Underwriters’ counsel	Advises underwriters and supports diligence
Auditors	Provide audited financials and comfort procedures
Transfer agent / registrar	Handles share records and issuance mechanics
Trustee	Represents debt holders under an indenture

Registered Offering Workflow

    flowchart TD
	    A[Engagement and Planning] --> B[Due Diligence]
	    B --> C[Draft Registration Statement]
	    C --> D[SEC Filing / Review Process]
	    D --> E[Preliminary Prospectus and Marketing]
	    E --> F[Roadshow and Bookbuilding]
	    F --> G[Pricing]
	    G --> H[Final Prospectus]
	    H --> I[Closing and Settlement]
	    I --> J[Aftermarket / Stabilization / Ongoing Disclosure]

Offering Documents and Communications

Item	Purpose	Trap
Registration statement	Filed disclosure package for registered offering	Includes more than the prospectus
Preliminary prospectus	Marketing document before final pricing	Final price and size may be missing
Final prospectus	Final offering disclosure	Use final terms after pricing
Free writing prospectus-style communication	Written offer communication outside statutory prospectus framework	Must fit applicable rules and be controlled carefully
Roadshow deck	Investor marketing presentation	Must be consistent with filed disclosure
Comfort letter	Auditor procedures for underwriters	Not a guarantee of future performance
Legal opinion	Counsel’s legal conclusions on specific matters	Not a business recommendation
Underwriting agreement	Contract between issuer/selling holders and underwriters	Defines representations, indemnity, closing conditions
Lock-up agreement	Restricts certain holders from selling for a period	Designed to reduce immediate supply pressure
Blue sky / state securities review	State-level securities compliance where applicable	Do not confuse with federal registration
Offering memorandum	Private placement disclosure	Not the same as registered prospectus

Debt Offering Review

Feature	What to Know
Coupon	Periodic interest paid to investors
Maturity	Final repayment date
Yield	Investor return based on price, coupon, and maturity
Call protection	Limits issuer’s ability to redeem early
Put right	Investor right to require issuer repurchase under specified conditions
Seniority	Priority relative to other claims
Security	Whether debt is backed by collateral
Covenants	Contractual restrictions or requirements
Ratings	Credit agency opinion, not a guarantee
Indenture	Governing contract for debt securities
Trustee	Acts for bondholders under the indenture

Equity and Equity-Linked Securities

Security	Key Features	Exam Angle
Common stock	Residual ownership, voting rights, dividends if declared	Highest upside, lowest priority
Preferred stock	Dividend preference and liquidation preference	May be convertible or redeemable
Convertible debt	Debt convertible into equity	Affects dilution and capital structure
Convertible preferred	Preferred equity convertible into common	Hybrid valuation and dilution impact
Warrants	Right to buy shares at exercise price	Dilutive if in the money
Rights	Short-term privilege for existing holders	Often used to preserve ownership participation
ADRs	Receipts representing foreign company shares	Adds custody, currency, and foreign issuer considerations

New Issue Allocation and Conflicts

High-yield regulatory themes:

Do not allocate hot IPO shares to obtain improper business.
Watch for restricted persons and conflicts in new issue allocations.
Avoid quid pro quo arrangements.
Do not favor executives or decision-makers to influence investment banking business.
Disclose material conflicts where required.
Follow firm procedures for allocation, documentation, supervision, and recordkeeping.

Underwriting Traps

Trap	Correct Exam Response
Confusing primary and secondary shares	Primary proceeds go to issuer; secondary proceeds go to selling holders
Treating best efforts as guaranteed financing	Best efforts does not guarantee full proceeds
Ignoring selling shareholder impact	Secondary shares do not raise issuer capital
Using preliminary terms after final terms given	Final prospectus terms control
Missing underwriting conflict	Affiliated issuers, compensation, and control relationships require attention
Ignoring research restrictions	Investment banking and research interactions are regulated
Assuming private placement securities are freely tradable	Resale restrictions and exemption conditions matter
Treating ratings as investment guarantees	Ratings are opinions, not guarantees

Securities Act vs Exchange Act Mindset

Area	Core Focus
Securities Act framework	Offering and sale of securities; registration and exemptions; prospectus disclosure
Exchange Act framework	Trading markets, reporting companies, proxy rules, tender offers, anti-fraud rules
FINRA framework	Broker-dealer conduct, underwriting, communications, conflicts, supervision, allocations
SEC disclosure framework	Material, accurate, non-misleading disclosure to investors
Anti-fraud framework	Do not make material misstatements or omissions in connection with securities activity

Material Nonpublic Information

MNPI is information that is both:

Material: a reasonable investor would consider it important, or it would likely affect price.
Nonpublic: not broadly disseminated to the market.

Common investment banking MNPI examples:

Unannounced merger or acquisition.
Pending securities offering.
Nonpublic earnings results.
Major customer loss.
Financing distress.
Tender offer plans.
Credit downgrade before public release.
Significant litigation or regulatory event.
Board decision on strategic alternatives.

Correct exam instincts:

Do not trade while aware of MNPI.
Do not tip others.
Maintain confidentiality.
Follow information barrier procedures.
Use restricted and watch lists appropriately.
Escalate potential breaches to compliance or supervisory personnel.
Do not selectively disclose material information improperly.

Information Barriers

Tool	Purpose
Restricted list	Limits trading or research activity for securities where firm has sensitive involvement
Watch list	Confidential monitoring list for compliance surveillance
Wall crossing	Controlled process for sharing MNPI with approved personnel
Need-to-know access	Limits MNPI access to necessary individuals
Physical / electronic barriers	Prevent inappropriate information flow
Supervisory review	Ensures procedures are followed
Documentation	Creates record of approvals, access, and restrictions

Communications With the Public

High-yield principles:

Communications must be fair, balanced, and not misleading.
Projections and forecasts require careful basis and context.
Past performance should not imply guaranteed future results.
Risks must be disclosed with benefits.
Internal-use materials and public-use materials are treated differently.
Institutional communications still require professional standards and supervision.
Offering communications must be consistent with applicable securities offering rules.
Banker pitchbooks should not overstate certainty, valuation, or transaction outcomes.

Research and Investment Banking Conflicts

Series 79 candidates should recognize:

Research analysts and investment banking personnel have conflict restrictions.
Banking revenue should not improperly influence research.
Promises of favorable research are problematic.
Research timing around offerings can be restricted.
Analyst participation in marketing can be limited.
Compensation and supervision structures matter.
Issuer review of research is limited and controlled.

Regulation M and Distribution Activity

Regulation M-style questions focus on preventing manipulation during securities distributions.

Remember the concept:

During a distribution, certain bids, purchases, inducements, and stabilization-related activities are restricted or regulated.
The rule is designed to prevent artificial market activity while securities are being distributed.
Stabilization and syndicate covering activity can be permitted only within applicable conditions.
Identify whether the person is an issuer, selling security holder, underwriter, broker-dealer, or affiliated purchaser.

Exam trap: if a question involves a public offering and trading in the same security during the distribution period, consider anti-manipulation rules.

Underwriting Compensation and Conflicts

Regulatory themes include:

Underwriting compensation must be fair and properly disclosed.
Items of value related to an offering may be treated as compensation.
Conflicts can arise when the underwriter has a relationship with the issuer.
Proceeds used to repay underwriter-affiliated debt can create conflict issues.
Independent review or enhanced disclosure may be required in conflict situations.
Records and filings must support the compensation analysis.

IPO Allocation Issues

Watch for:

Allocations to persons who are restricted from receiving new issues.
Spinning: allocating shares to executives or directors to influence investment banking business.
Quid pro quo allocations.
Inflated aftermarket purchase arrangements.
Failure to maintain allocation records.
Preferential treatment inconsistent with firm procedures.

Anti-Money Laundering and Customer Identification Themes

Although Series 79 is investment banking-focused, regulatory questions may still test broker-dealer control concepts:

Know your customer and beneficial ownership awareness.
Suspicious activity escalation.
Sanctions screening.
Source-of-funds concerns.
Politically exposed persons and high-risk customers.
Recordkeeping and supervisory procedures.

Gifts, Entertainment, and Outside Activities

High-yield conduct rules:

Gifts and entertainment cannot be used to improperly influence business.
Firm policies and regulatory limits must be followed.
Outside business activities and private securities transactions require disclosure and approval where applicable.
Compensation arrangements must be transparent and approved.
Personal conflicts should be escalated.

Mergers, Acquisitions, Tender Offers, and Business Combinations

Major Deal Types

Deal Type	Description	Key Exam Issue
Stock purchase	Buyer purchases target stock from shareholders	Buyer gets entity with assets and liabilities
Asset purchase	Buyer purchases selected assets and assumes selected liabilities	Consents and asset transfers matter
Statutory merger	Entities combine under merger statute	Board and shareholder approvals may be central
Tender offer	Bidder offers directly to target shareholders	Disclosure, equal treatment, withdrawal rights, and timing rules matter
Two-step acquisition	Tender offer followed by merger	Tender mechanics plus merger mechanics
Leveraged buyout	Acquisition financed significantly with debt	Debt capacity and sponsor return drive analysis
Management buyout	Management participates in acquiring company	Conflicts and fairness concerns are heightened
Going-private transaction	Public company becomes private	Disclosure and conflict review are critical
Spin-off	Parent distributes subsidiary shares to shareholders	Separation, tax, and disclosure issues
Carve-out	Parent sells minority stake in subsidiary, often via IPO	Parent may retain control
Divestiture	Sale of a business unit or asset	Standalone financials and separation issues matter
Joint venture	Parties combine resources for a business purpose	Governance and contribution terms are key

Notes and examples

Sell-Side vs Buy-Side Process

Phase	Sell-Side Focus	Buy-Side Focus
Preparation	Position company, prepare CIM, build buyer list	Define acquisition criteria and valuation limits
Outreach	Contact buyers under confidentiality	Review teasers and sign NDA
Indications	Solicit IOIs or preliminary bids	Submit valuation range and key assumptions
Due diligence	Manage data room and Q&A	Validate business, financials, legal, tax, operations
Final bids	Compare price, certainty, structure	Submit binding proposal and financing plan
Negotiation	Maximize value and certainty	Manage price, risk allocation, conditions
Signing	Execute definitive agreement	Lock in terms and approvals
Closing	Satisfy conditions and approvals	Fund purchase price and integrate

M&A Documents

Document	Purpose
Teaser	Anonymous short marketing summary
NDA / confidentiality agreement	Protects nonpublic information
Confidential information memorandum	Detailed sell-side marketing book
Indication of interest	Nonbinding preliminary proposal
Letter of intent	Outlines major terms; may include binding confidentiality/exclusivity provisions
Data room	Repository for diligence documents
Purchase agreement / merger agreement	Definitive legal contract
Disclosure schedules	Exceptions and detail supporting reps and warranties
Board presentation	Banker analysis for board decision-making
Fairness opinion	Opinion on financial fairness from a specified perspective
Proxy statement	Shareholder voting disclosure
Tender offer materials	Disclosure for direct shareholder offer

Consideration Structures

Consideration	Buyer Impact	Seller Impact	Exam Trap
Cash	Certainty of value; may require cash/debt financing	Immediate value certainty	Buyer leverage may increase
Stock	Preserves cash; shares future upside/risk	Seller participates in combined company	Exchange ratio and market risk matter
Mixed cash/stock	Balances certainty and participation	Partial certainty, partial upside	Need calculate total value correctly
Earnout	Defers part of price based on future performance	Seller may receive more if targets met	Can create disputes over metrics/control
Seller note	Seller finances part of purchase price	Seller takes buyer credit risk	Not equivalent to cash
Contingent value right	Payment tied to future event or value	Event-specific upside	Complex valuation and disclosure

Fixed Exchange Ratio vs Fixed Value

Structure	Meaning	Who Bears Market Risk?
Fixed exchange ratio	Seller receives fixed number of buyer shares	Seller bears buyer share price movement
Fixed value	Share amount adjusts to deliver agreed value	Buyer bears more share issuance risk
Collar	Adjusts economics within defined range	Risk shared depending on collar design

Purchase Price and Adjustments

Common M&A adjustment areas:

Cash-free, debt-free pricing.
Net working capital target.
Debt-like items.
Transaction expenses.
Escrows and holdbacks.
Earnouts.
Indemnification claims.
Minority interests.
Preferred stock or option treatment.

Trap: Enterprise value is not always the cash paid to shareholders. Equity proceeds depend on debt, cash, working capital adjustments, transaction expenses, and securityholder treatment.

Control Premium and Minority Discount

Concept	Meaning
Control premium	Amount paid above unaffected market price to obtain control
Minority discount	Reduction for lack of control
Liquidity discount	Reduction for lack of marketability
Strategic premium	Value attributed to synergies or strategic rationale
Unaffected price	Market price before deal rumors or announcement impact

Fairness Opinions

A fairness opinion typically addresses whether transaction consideration is fair, from a financial point of view, to a specified party or group.

Know what a fairness opinion is not:

Not a legal opinion.
Not a tax opinion.
Not a solvency opinion unless specifically stated.
Not a recommendation that shareholders vote for the deal.
Not a guarantee the company received the highest possible price.
Not a statement that the transaction is strategically optimal.

High-yield fairness opinion issues:

Scope of analysis.
Information relied upon.
Assumptions and limitations.
Conflicts and compensation.
Relationship between banker and parties.
Board process and disclosure.
Whether opinion is addressed to the board, committee, or another party.

Tender Offers vs Mergers

Feature	Tender Offer	Merger
Who is approached?	Target shareholders directly	Target company board and shareholders through merger process
Main action	Shareholders tender shares	Shareholders vote if required
Key disclosure	Tender offer materials	Proxy or proxy/prospectus materials
Timing focus	Offer period, withdrawal, proration, amendments	Record date, vote, approvals, closing conditions
Board role	Target board responds and advises	Board negotiates and recommends transaction
Common use	Public company acquisition, hostile or friendly	Friendly negotiated acquisition

Hostile Deal Defense Concepts

Defense / Term	Meaning
Poison pill / rights plan	Makes hostile acquisition more difficult by diluting bidder if triggered
Staggered board	Directors elected in classes, slowing board control change
White knight	Friendly alternative acquirer
Pac-Man defense	Target attempts to acquire bidder
Crown jewel defense	Target sells key asset to reduce attractiveness
No-shop	Restricts target from soliciting alternative bids
Go-shop	Permits target to seek alternatives for a defined process
Break-up fee	Fee payable if deal fails under specified circumstances
Matching right	Gives initial bidder right to match superior proposal

M&A Traps

Trap	Correct Thinking
Assuming highest price is always best	Boards also consider certainty, financing, timing, conditions, regulatory risk
Ignoring conflicts in management buyout	Management may be on both sides; special process may be needed
Treating fairness opinion as a recommendation	It addresses financial fairness within stated limits
Confusing tender offer and proxy vote	Tender offer is direct shareholder offer; merger vote uses proxy process
Forgetting stock consideration disclosure	Buyer securities issuance may require securities-law disclosure
Counting synergies twice	Synergies should be included only once and from the correct perspective
Treating enterprise value as equity proceeds	Adjust for cash, debt, working capital, and expenses
Ignoring change-of-control provisions	Debt, contracts, options, and employment agreements may be affected

Financial Restructuring Transactions

Capital Structure Priority

In distress, value is allocated according to legal and contractual priority, subject to negotiated outcomes.

Priority Level	Typical Position
Superpriority / DIP financing	Often high priority in bankruptcy context
Secured debt	Claims backed by collateral
Senior unsecured debt	Senior claims without specific collateral
Subordinated debt	Paid after senior debt
Preferred equity	Preference over common, below debt
Common equity	Residual claim, highest risk

Notes and examples

Distressed Company Warning Signs

Declining revenue or margins.
Negative free cash flow.
Covenant pressure.
Near-term maturities.
Liquidity shortfall.
Excessive leverage.
Asset impairment.
Vendor tightening.
Rating downgrades.
Going-concern audit concerns.
Inability to refinance.
Customer concentration or contract loss.

Restructuring Alternatives

Alternative	What It Does	Exam Angle
Amendment / waiver	Modifies or waives credit agreement terms	Often used for covenant relief
Refinancing	Replaces existing debt	Depends on market access and credit profile
Debt exchange	Existing creditors exchange into new securities	May reduce debt, extend maturity, or alter priority
Consent solicitation	Seeks creditor approval to amend terms	Thresholds and creditor classes matter
Tender offer for debt	Issuer offers to buy back debt	Disclosure and equal treatment issues can arise
Asset sale	Raises liquidity through divestiture	Collateral and consent issues matter
Equity raise	Adds capital	Dilution and market receptivity matter
Out-of-court restructuring	Negotiated without formal bankruptcy	Requires creditor cooperation
Prepackaged / prearranged plan	Negotiated before filing	Seeks faster court process
Bankruptcy sale	Sale of assets under court process	Can cleanse certain liabilities depending on structure
Liquidation	Wind-down and asset distribution	Recovery analysis is central

Recovery Analysis

Recovery analysis estimates how much each creditor class may receive under a restructuring or liquidation.

Key steps:

Estimate enterprise value or liquidation value.
Identify claims by priority.
Allocate value through the capital structure.
Consider collateral coverage for secured claims.
Account for administrative costs and restructuring expenses.
Estimate recovery percentage by class.
Compare recoveries across restructuring alternatives.

Restructuring Traps

Trap	Correct Thinking
Treating all debt as equal	Priority, liens, guarantees, and subordination matter
Ignoring maturity schedule	Near-term maturity can drive liquidity crisis
Ignoring covenants	Default risk may arise before cash runs out
Assuming equity has value	Equity is residual and may be out of the money
Using book value as recovery value	Recovery depends on realizable asset or enterprise value
Forgetting creditor consent	Amendments and exchanges depend on required approvals
Ignoring tax and accounting effects	Debt forgiveness and exchanges can create consequences

Calculation Cheat Sheet

Core Formula Table

Topic	Formula / Logic
Equity value	Share price × fully diluted shares
Enterprise value	Equity value + debt + preferred equity + noncontrolling interest − cash
EV / EBITDA	Enterprise value ÷ EBITDA
EV / Revenue	Enterprise value ÷ revenue
P / E	Share price ÷ EPS, or equity value ÷ net income
EBITDA	EBIT + depreciation + amortization
EBIT	Revenue − operating expenses, before interest and taxes
Gross margin	Gross profit ÷ revenue
EBITDA margin	EBITDA ÷ revenue
Net margin	Net income ÷ revenue
Current ratio	Current assets ÷ current liabilities
Debt / EBITDA	Debt ÷ EBITDA
Interest coverage	EBITDA or EBIT ÷ interest expense
Free cash flow	Operating cash flow − capital expenditures, or modeled from EBIT depending on prompt
Premium paid	Offer price ÷ unaffected price − 1
Exchange ratio	Buyer shares issued per target share
Pro forma ownership	Shares received ÷ total pro forma shares
Accretion / dilution	Pro forma EPS compared with buyer standalone EPS

Notes and examples

Working Capital

Working capital often means:

\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]

But in M&A, the definition may exclude cash, debt, taxes, transaction expenses, or other items. Always use the definition in the prompt.

Premium Paid

\[ \text{Premium Paid} = \frac{\text{Offer Price} - \text{Unaffected Share Price}}{\text{Unaffected Share Price}} \]

Candidate trap: Use the unaffected share price when the question asks for deal premium before rumors or announcement impact.

Bond Price and Yield Intuition

If Market Rates…	Existing Bond Price Usually…	Why
Rise	Falls	Existing coupon is less attractive
Fall	Rises	Existing coupon is more attractive

For debt offerings, understand directionality even when no detailed bond math is required.

Accretion / Dilution Directional Drill

Scenario	Likely EPS Effect, All Else Equal
Buyer uses stock to buy a company with lower P/E	More likely accretive
Buyer uses stock to buy a company with higher P/E	More likely dilutive
Buyer uses debt at high interest cost	More dilutive pressure
Large cost synergies	More accretive pressure
High amortization from purchase accounting	More dilutive pressure
Target has negative earnings	More dilutive pressure

High-Yield Decision Tables

Which Valuation Method Fits?

Prompt Clue	Likely Method
Public peers, market multiples	Comparable company analysis
Prior acquisitions, control premium	Precedent transaction analysis
Long-term projections, cash flow, terminal value	DCF
Sponsor return, debt capacity, exit multiple	LBO
Conglomerate with distinct segments	Sum-of-the-parts
Distressed liquidation	Liquidation analysis
Creditor recoveries	Recovery analysis

Notes and examples

Which Document Fits?

Prompt Clue	Document
Public equity offering disclosure	Prospectus / registration statement
Private placement disclosure	Offering memorandum
M&A sell-side marketing	Teaser or CIM
Shareholder vote	Proxy statement
Direct offer to shareholders	Tender offer materials
Board asks if consideration is financially fair	Fairness opinion
Debt covenant terms	Credit agreement or indenture
Banker’s fee and role	Engagement letter
Acquisition legal terms	Merger or purchase agreement

Which Regulatory Concern Fits?

Prompt Clue	Main Concern
Banker knows unannounced acquisition	MNPI / insider trading
Offering and market purchases	Regulation M-style distribution restriction
Analyst pressured for favorable report	Research conflict
IPO shares allocated to executive for future business	Spinning / allocation abuse
Underwriter affiliated with issuer	Conflict of interest
Public statement omits major risk	Misleading communication / anti-fraud
Selective disclosure to favored investor	Selective disclosure / confidentiality concern
Private placement resale	Restricted securities / exemption conditions
Board receives banker opinion	Fairness opinion disclosure and conflicts

Common Candidate Mistakes

Valuation Mistakes

Using equity value with EBITDA.
Forgetting to subtract cash in enterprise value.
Ignoring preferred stock or noncontrolling interest.
Using basic shares when diluted shares are required.
Applying a control premium twice.
Comparing calendar-year metrics to fiscal-year metrics without adjustment.
Mixing historical, projected, and run-rate numbers.
Treating management projections as guaranteed.
Ignoring one-time adjustments.
Forgetting working capital and capex in free cash flow.

Notes and examples

Offering Mistakes

Confusing issuer proceeds with selling shareholder proceeds.
Treating best efforts as firm commitment.
Assuming all private placements are exempt without conditions.
Ignoring resale restrictions.
Failing to identify underwriter conflicts.
Treating roadshow materials as unregulated.
Ignoring research restrictions near offerings.
Missing restricted-person issues in new issue allocations.

M&A Mistakes

Confusing tender offer with merger vote.
Treating fairness opinion as legal advice.
Assuming cash and stock consideration have the same risk.
Forgetting exchange ratio market risk.
Ignoring financing conditions.
Assuming board must accept the highest nominal price.
Missing management conflicts in MBOs.
Ignoring antitrust, shareholder, lender, or contractual approvals when the prompt flags them.

Restructuring Mistakes

Paying common equity before debt in recovery analysis.
Ignoring secured creditor collateral.
Treating book asset value as liquidation value.
Missing covenant defaults.
Ignoring debt maturities.
Forgetting consent thresholds and creditor classes.
Assuming out-of-court restructuring is always easier than court-supervised restructuring.

Regulation Mistakes

Trading while aware of MNPI.
Sharing confidential deal information casually.
Promising investment banking business in exchange for allocation benefits.
Allowing research to be influenced by banking fees.
Using misleading projections in communications.
Ignoring firm supervisory and compliance procedures.
Failing to escalate conflicts.

Fast Review: “If You See This, Think That”

If You See…	Think…
Unannounced deal	MNPI, confidentiality, restricted list
Public offering plus trading activity	Distribution rules and anti-manipulation
IPO allocation to executive	Spinning / quid pro quo concern
Banker has financial interest in deal	Conflict disclosure and supervision
Board asks about consideration	Fairness opinion and process
Shareholders are being asked to vote	Proxy rules
Direct offer to shareholders	Tender offer rules
Issuer selling new shares	Primary proceeds
Existing holder selling shares	Secondary proceeds
EBITDA multiple	Enterprise value
EPS or net income multiple	Equity value
Debt-heavy acquisition	Interest expense and leverage
Stock-for-stock deal	Exchange ratio and dilution
Distressed issuer	Priority, liquidity, covenants, recovery
Private offering	Exemption, investor eligibility, resale limits
Selective disclosure	Reg FD-style concern and confidentiality

Mini Topic Drills to Do After Review

Use a question bank with original practice questions and detailed explanations to test the following skills independently.

Drill 1: Enterprise Value vs Equity Value

Practice until you can quickly answer:

Which securities are included in enterprise value?
Which metrics pair with enterprise value?
How do options, warrants, and convertibles affect diluted shares?
How do cash, debt, preferred stock, and noncontrolling interest affect the bridge?
When do you use market value vs book value?

Notes and examples

Drill 2: Offering Type Recognition

Mix questions on:

IPOs.
Follow-ons.
Shelf offerings.
Primary vs secondary offerings.
Private placements.
Debt offerings.
Convertible offerings.
Rights offerings.

Goal: identify the correct document, party, risk allocation, and regulatory concern from the first few facts.

Drill 3: M&A Workflow

Practice scenarios involving:

NDA, teaser, CIM, IOI, LOI, data room, final bid, purchase agreement.
Asset purchase vs stock purchase vs merger.
Cash vs stock vs mixed consideration.
Fairness opinions.
Tender offers.
Proxy statements.
Board conflicts.

Drill 4: Restructuring Waterfall

Work recovery questions involving:

Secured debt.
Senior unsecured debt.
Subordinated debt.
Preferred equity.
Common equity.
Collateral shortfalls.
Enterprise value sensitivity.
Exchange offers and consent solicitations.

Drill 5: Regulation and Conduct

Drill fact patterns on:

MNPI.
Insider trading.
Information barriers.
Research conflicts.
IPO allocations.
Underwriting conflicts.
Communications with the public.
Misleading statements and omissions.
Confidentiality and escalation.

Final Cheat Sheet Before a Mock Exam

Before starting a timed mock exam, recite these rules:

EV pairs with EBITDA, EBIT, and revenue; equity value pairs with net income and EPS.
Primary offering proceeds go to the issuer; secondary offering proceeds go to selling holders.
Firm commitment shifts distribution risk to the underwriter; best efforts does not guarantee proceeds.
A fairness opinion is financial fairness, not legal advice or a deal recommendation.
Tender offers go directly to shareholders; mergers usually involve board negotiation and shareholder voting.
MNPI means stop, protect confidentiality, and follow firm procedures.
Research cannot be used as a bargaining chip for investment banking business.
In distress, priority matters before ownership percentage.
Accretion is not the same as value creation.
If a communication could mislead investors, the anti-fraud framework is probably relevant.

Put the review into practice

Finance Prep

Start Series 79 \u2014 Investment Banking Representative Exam on Web

Use the web app to preview question style, then practise the topics you need to revisit.

Original Finance Prep practice, independent from FINRA: not official FINRA questions, copied live-exam content, or exam dumps.

Current alignment Aligned to the relevant syllabus, exam elements, competency areas, and topic weights where they are available.

Practice modes Use topic drills, timed mocks, scenario questions, and focused review before deeper mixed practice.

Teaching explanations Explanations show the client, product, compliance, or calculation rule that makes the best answer defensible.

Stable bank Questions are prebuilt and reviewed before publication, so practice is stable and inspectable, not improvised during a quiz.

Study Plan

Series 79 — Investment Banking Representative Exam Cheat Sheet

Series 79 Thinking Pattern

High-Yield Exam Lens

Core Deal Workflow

Valuation Formula Sheet

Enterprise Value and Equity Value

Fully Diluted Shares

Comparable Companies Analysis

Precedent Transactions Analysis

Discounted Cash Flow

LBO Cheat Sheet

Financial Statement and Ratio Reference

Income Statement, EBITDA, and Cash Flow

Balance Sheet Links

Core Credit and Operating Ratios

M&A Cheat Sheet

Transaction Structure Matrix

Consideration Choices

Public M&A Documents

M&A Agreement Provisions

Capital Markets and Securities Offerings

Offering Type Decision Table

Underwriting Structures

Equity vs Debt vs Hybrid Securities

Debt Covenant Reference

Securities Law and Compliance Cheat Sheet

Registration and Exemption Concepts

Public Offering Communication Categories

Regulation M and Market Conduct

MNPI, Insider Trading, and Information Barriers

Liability and Due Diligence

FINRA Conduct Themes

Restructuring and Distressed Situations

Capital Structure Priority

Restructuring Alternatives

Recovery Analysis

Deal Documents Reference

Accounting, Tax, and Purchase Price Concepts

Accretion / Dilution Framework

Common Scenario Traps

Fast Decision Checklist

Valuation

Offering

M&A

Compliance

Transaction Lifecycle Map

High-Yield One-Page Checklist

Data Collection and Analysis

Valuation and Financial Modeling

Underwriting and New Financing

M&A, Tender Offers, and Restructuring

Regulation and Conduct

Core Documents and What They Tell You

Due Diligence Categories

Accounting Relationships Candidates Miss

Enterprise Value vs Equity Value

Fully Diluted Share Count

Valuation Methods Cheat Sheet

DCF Core Formula Review

DCF Decision Rules

Accretion / Dilution Review

Offering Types

Firm Commitment vs Best Efforts

Underwriting Participants

Registered Offering Workflow

Offering Documents and Communications

Debt Offering Review

Equity and Equity-Linked Securities

New Issue Allocation and Conflicts

Underwriting Traps

Securities Act vs Exchange Act Mindset

Material Nonpublic Information

Information Barriers

Communications With the Public

Research and Investment Banking Conflicts

Regulation M and Distribution Activity

Underwriting Compensation and Conflicts

IPO Allocation Issues

Anti-Money Laundering and Customer Identification Themes

Gifts, Entertainment, and Outside Activities