Distressed PE case study
I‘m currently recruiting for a small cap distressed/turnaround PE investor and they gave me a case study to solve. It includes a quick and dirtypart, based on a IM. So, the of the company is slightly positive (~ half a million), last three years have about the same EBITDA. However, the company has about 20m in net debt.
I am now wondering about the valuation. I have no experience in distressed investing nor in restructuring. So, appyling an EBITDA multiple of, lets say 7-8x, results in an EV of 3-4m - but net debt is 20m. What would the purchase price be then/what should the PE fund pay? I mean, an EV of 3m - 20m net debt results in a negative?!
I am a bit confused because of the high net debt. I heard that the fund sometimes pays 1$ for companies, or even get compensated for acquiring distressed companies. Could this also be the case here?
I hope somebody can help me.