I am building out an LBO from a CIM. If the CIM doesn't provide information on NWC, what is the best way to project this out for a conservative estimate? For now, I've kept D&A the same as capex (capex is provided in the CIM for projection years but they are quite aggressive)
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If you've got zero balance sheet working capital info I'd look for comps of similar companies to come up with a reasonable estimate of NWC as a % of sales. That will allow you to estimate the WC impact on cash flows as revenues increase/decrease.
Why the assumption of D&A = capex? That would imply maintenance levels only and no growth, which seems odd for an LBO target.
That makes sense for NWC
For D&A and Capex in that case, what would be the best way to project this out? They gave capex projections broken out into maintenance and growth but they are a bit aggressive cut-backs every year (especially in year 1-2). They did not provide D&A
Maintenance capex is essentially the expense required to offset depreciation, so absent better info I'd just set them equal. If you have info on intangible assets then you'd need amortization on top of your depreciation.
Thank you for being so helpful in this! I'm building out an LBO for a case study so for the purposes of that I was just thinking of simplifying it and using the total capex they provided (regardless of maintenance vs. growth breakout, which seem to be 50/50 anyways) in the CIM.
In that case, do you think based on your comment, it makes sense to just figure out D&A, Capex, and NWC as a % of revenue for the last historical year for comparable companies and apply the median to my target company's projected forward year? From there, I would then assume that this flat lines from the sponsor's entry to exit? Thank you so much again!
IMO setting D&A equal to capex when you know there's growth capex included seems like an oversimplification and incorrect.
Hard to suggest what to do with capex projections without knowing expectations of the case study. At the very least I would think you'd want to be able to articulate a reason for deviating from the projections they provided to you.
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