PE interview question: sources & uses

Question

Assumptions:
Entry multiple: 8.0x
EBTIDA: 40m
Debt: 60m
Non-controlling interest: 10m
Unfunded pension liabilities: 10m

New debt: 160m

What is the required equity contribution? 
Please create a sources & uses table and assume you roll over pension liabilities.

Follow-up: If the shareholder/founder wants to roll over a 20% stake, what would be his equity value pro forma for the transaction? In this case, what is the required equity cheque by the existing shareholder/founder?

b43b6b7b82b87 · Accepted Answer

"driven"
OP's question was what is the seller's equity check to roll a 20% stake. Translation: what dollar amount would he need to roll in order to own a 20% stake in NewCo. This requires both Sources (NewCo equity value) and Uses (seller proceeds). Calculating 20% of existing equity value requires only Uses.

Rover-S did correctly calculate this (as did I) given NCI could be treated either way.

OP's question states that the founder wants to roll over a 20% stake. This phrasing usually implies that 20% of equity owned by the founder before the sale is reinvested alongside a new buyer.

Rover-S · Answer

Uses
Equity purchase price (8*40-60-10-10) = 240
Debt repayment: 60
NCI: 0 (NCI will roll over)
Pension: 0 (will be paid at certain moment in time through cash flow but does reduce equity purchase price now)

Sources
New debt 160
New equity: 140

Roll-over 20%: 24020%= 48m
Roll-over to retain a 20% stake: 14020% =28m

driven · Answer

That is not correct, you need to solve for the Equity Value of NewCo ($150m), since that is what the Seller is looking for a 20% equity stake in. See below.

driven · Answer

"b43b6b7b82b87"

OP's question states that the founder wants to roll over a 20% stake. This phrasing usually implies that 20% of equity owned by the founder before the sale is reinvested alongside a new buyer. Existing phrasing doesn't seem to imply that the founder will own 20% of equity when the buyer invests. I am not sure why you made such assumption

Because its a PE interview question designed to build a Sources and Uses table. Calculating 20% of seller proceeds DOES NOT require you to build a S&U table - you only need to do a proceeds waterfall.

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PE interview question: sources & uses

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PE interview question: sources & uses

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