Sources and uses question
Assumptions:
$100m target EV
$20m target debt
$15m target finance leases
$10m target unfunded pension liabilities
$50m new debt to finance transaction
$5m entry advisory fees
Debt free cash free transaction
Is the following S&U correct? I am in particular uncertain about the "$20m repay target debt" part when it is debt free cash free
Sources
- $50m debt
- $30m investor equity
- TOTAL: 80m
Uses
- $55m equity purchase price (100 - 20 - 15 - 10)
- $20m repay target debt
- $5m advisory fees
- TOTAL: $80m
It depends on how the finance lease and pensions liabilities are treated. If not treated as debt-like items then you're correct. Assuming the finance lease and pension liabilities are treated as debt-like, this wouldn't be correct. You'd need the below:
Sources:
Uses:
The easiest way I find to think about debt free, cash free is that those items aren't continuing with the business. So to make sure that debt doesn't continue it has to be paid down at transaction.
It's right assuming the leases and underfunded pension liabilities can be rolled over. That's no always the case in practice.
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