Hey,
I have a 3 h LBO case study coming up. Lets say we are acquiring a company with non-controlling interests on its balance sheet as well as associates (we acquire 100%).
Question 1: Since we acquire 100%, we must take out minority shareholders and thus include minority interest in our equity-to-EV bridge. We then adjust our balance sheet to remove minority interest. Correct?
Question 2: How would you handle associates? One alternative is to assume it is sold before close and thus included in cash and cash equivalents. The other alternative would be to included it in our Uses part of the S&U as it is not included in EV (it is subtracted when going from equity to EV). We would then remove it from balance sheet. Which alternative would you go for?
Question 3: Would a "better" option be to ignore these two items completely in the case study?
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I am always in the camp of just make it clear.
The thing I like about including it in the sources and uses is if it was in the original balance sheet you can map to it being removed.
But you can also just footnote it, just be consistent clear, and able to communicate what you did and you will be fine.
Q1: a NCI is a minority shareholder in a subsidiary, so you can buy 100% of holding and not own the NCI shares. Make sure to value the NCI separatly as book value is not an appropiate proxy of its value often.
Q2: privately owned associates are not all of a sudden sold at book value, so no. In general you acquire them with the company so you have to fund them. They require a separate valuation too. Alternatives are to be negotiated with seller. So value of associates is a use of cash, so you need a source to fund it.
Q3: no.
Q1: If you assume you buy out the NCI, it goes into Uses correct?
For Minorities and associates, both are taken into account in the bridge correct? So Plus Associates (cash like); less Minorities (debt like)
Q1. I guess you are right. How to reflect this in the S&U if the minority shareholders wish to remain in the biz vs sell their stake to the PE firm as well? If they wish to remain minority holders, would you simply add it under "Uses" as a "roll-over" item similar to how a management stake is rolled-over? And if they are exiting I guess you would just include it as a Use of cash (it is included in EV)?
NCI = debt-like item. Lowers equity proceeds in uses in this case, so you need less sources too.
10x 10m EBITDA = 100m EV
NCI value = 10
Sources: PE Financing of 90
Uses: 90 equity proceeds
Alternative:
Sources: PE Financing of 90, NCI 10
Uses: 100 Enterprise value
Okay so if we were to show the EV in the uses, would you add owned associates to the uses side in the S&U table? Because it would not be accounted for if calculating with EV, since it gets excluded in the bridge, going from equity value to enterprise value.
I have never seen these features be part of a case study however
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