Series 79 common mistakes
Series 79 · Understand the traps and how to avoid them.
In comparable company analysis, calculating equity value as enterprise value minus total debt only, while ignoring cash, preferred stock, and minority interest.
Candidates memorize a shortened 'EV = market cap + debt - cash' formula and then apply it without adjusting for other claims on the enterprise.
What to do instead
Build a full enterprise-value bridge every time: market cap + total debt + preferred stock + minority interest - cash and cash equivalents = enterprise value, then reverse it to equity value.
Using reported LTM EBITDA for the target and acquirer without calendarizing different fiscal year-ends or adjusting for nonrecurring items.
Candidates pull the first LTM figure from a filing or data screen and compare it directly to another company's fiscal-year data.
What to do instead
Create a calendarization table that aligns each company's quarters to a common period and separately lists nonrecurring adjustments before calculating multiples.
Treating the entire gross spread as the lead underwriter's compensation rather than separating management fee, underwriting fee, selling concession, and reallowance.
Candidates use 'spread' colloquially as the underwriter's fee and never reconstruct the syndicate economics.
What to do instead
For every underwriting question, break the gross spread into its components and identify which party receives each component before calculating compensation.
Assuming a firm-commitment underwriting transfers all price risk to the underwriter even when the commitment letter includes market flex and a force majeure out.
Candidates focus on the label 'firm commitment' and ignore the negotiated terms that shift risk back to the issuer.
What to do instead
Read the commitment terms as part of the fact pattern: distinguish firm commitment, best efforts, market flex, and outs before stating who bears pricing and market risk.
In a follow-on offering, counting proceeds from selling shareholders as new capital to the issuer.
Candidates see the word 'offering' and assume all shares sold generate proceeds for the company.
What to do instead
Before any proceeds calculation, label each selling party as issuer or selling shareholder and map proceeds only from primary shares to the company.
Applying the same Rule 144 holding period and volume limits to affiliates and non-affiliates.
Candidates compress Rule 144 into one holding period and forget that affiliate status changes the conditions.
What to do instead
Use a two-column matrix: affiliate versus non-affiliate, and reporting versus non-reporting issuer, then apply the correct holding period, current public information requirement, and volume/ manner-of-sale limits.
Concluding an all-stock acquisition is dilutive just because the acquirer's P/E is higher than the target's P/E.
Candidates compare P/E ratios directly instead of comparing the target's earnings yield to the acquirer's earnings yield and financing cost.
What to do instead
Calculate accretion/dilution from earnings yield: target earnings yield versus the after-tax cost of the consideration used, then test the result with and without synergies.
Ignoring whether merger consideration is fixed-exchange-ratio, fixed-value, or collared when calculating the per-share value received by target holders.
Candidates focus on the headline offer price and do not model how changes in the acquirer's stock price affect the actual consideration.
What to do instead
Model each consideration structure separately: fixed exchange ratio moves with the acquirer's stock, fixed value does not, and a collar only moves outside the stated band.
Assuming a tender offer can close after 10 business days or that tendered shares can be withdrawn only at the end of the offer.
Candidates confuse tender-offer timing with other transaction timelines and overlook the withdrawal-rights rule.
What to do instead
Memorize the core tender-offer timeline: the offer must remain open at least 20 business days, shareholders may withdraw during the offer period, and the best-price rule applies to all holders.
In a Chapter 11 recovery waterfall, paying old equity before unsecured creditors are satisfied.
Candidates apply an informal priority ranking and forget absolute priority and the priority of DIP and administrative claims.
What to do instead
Build the waterfall in strict priority order: DIP and administrative claims, secured claims up to collateral value, priority unsecured, general unsecured, then equity, and test whether any junior class is being paid ahead of a senior impaired class.