Financial Modeling World Championship

Late post, but fyi, the event's free w/ the promo code that was in the email flyer sent to all cap iq subscribers Placed 11th in Round 1, but b/c of work wasn't able to take part in round 2.

Anyone want to take a crack at the LBO case?

Private Equity firm wants to acquire a business for US$330m + any Advisory Fees equivalent to 2% of the transaction value. Assume the following:

-Transaction date of 30 December 2011 -The acquired entity comes with $1m of cash at bank and has no other assets or liabilities. -No interest is earned on cash at bank. -Senior bank debt of 3.0x of 2011 EBITDA has been obtained from a local bank. -The Seller has also agreed to provide an additional US$35m in the form of a vendor loan. -The Private Equity firm will invest the balance in the form of a shareholder note. The shareholder note is treated as a debt instrument for tax and accounting purposes. -The Senior Bank Debt incurs interest of 7% per annum and is payable in full on the last day of the year. -Principle is repaid on the initial drawdown as follow: 5% in year one, 15% in year two and 20% in year three, 30% in year four, 30% in year five. Principle repayments are not affected by any cash swept but stop when the full principle amount has been repaid. -The Vendor Loan pays an 8% (non-cash) which accrues annually. This vendor loan is subordinated to the bank debt. The vendor loan is treated as a debt instrument for tax and accounting purposes. -The Private Equity Firm shareholder loan pays a 15% non-cash pay coupon which accrues annually. This loan is subordinated to the senior bank debt and to the vendor loan. -The Company needs to maintain a minimum of US$1m operating cash at all times. Assume a full cash sweep for any amounts above US$1m. -The Private Equity firm wants to maintain control of the company and at the time of the acquisition will have a 85% shareholding in the company, while the management will retain 15%. -2011 Sales were US$100m, and assume this will grow by 7% in year 1, and 12% p.a. thereafter. -EBITDA margins were 35% in 2011 and are expected to increase by 2 percentage points per year for the next 5 years. -CAPEX over this period will be $15m per annum (equal to accounting and tax depreciation). -Assume an accounts receivable of $2.93m at the end of year 1, $6.21m at the end of year 2 $9.89m, at the end of year 3 $14.01m at the end of year 4 and $18.62m at the end of year 5. (On acquisition there were no accounts receivable) -Assume there are no accounts payable. -Tax will be charged at 30%.No tax refunds are provided for tax losses and tax losses are not carried forward to offset against future income. -The private equity firm expects to sell out at the end of year 5 with an 8x EBITDA exit multiple.

A few of the questions asked below:

1) What's the net profit in year 5? A) 3.8 B) 7.8 C) 13.8 D) 22.4

2) What is the total amount of accrued coupons paid after 5 years on the vendor loan? A) 14.1 B) 16.4 C) 20 D) 2 E) > 21

3) What is the recommended level of bank debt? A) 3.3x B) 3.0x C) 3.5x D) 4.0x

4) What are the PE firm's cash-on-cash returns at 7x, 8x, and 9x EBITDA exit multiples in year 5? A) 2.1x, 2.4x, 2.7x B) 2.4x, 2.7x, 3.1x C) 2.1x, 2.7x, 3.4x D) 2.7x, 3.1x, 3.5x