Sources & Uses when it's not cash-free debt-free
I always build my S&U cash-free and debt-free, and I'm now struggling to build ones that are not. Can someone help me with the S&U for the below?
- Acquires the Company for 10x LTM EBITDA; LTM EBITDA of $10M
- Refinances the Company's existing debt of $10M and leaves existing cash of $5M on the balance sheet
- Existing shareholders roll 20% of equity proceeds
- New term loan of 4x leverage with 1.5% financing fees
- $5M transaction fees
Uses:
Equity Value: 95.0 (EV-Net Debt)
Refinancing debt: 10.0 (usually this is netted vs. cash on b/s)
Transaction fees: 5.0
Financing fees: 0.6
TOTAL: 110.6
Sources:
New debt: 40.0
Existing shareholders: 19.0
New shareholders: 51.6
TOTAL: 110.6
Effectively what is happening is the same as in a cash free/debt free deal: you pay the seller the EV plus cash less the amount that goes to the existing (leaving) lender.
Best way to think about it is what line items between EV and equity value do you need to fund and when: there are (i) refinancing items (cash, existing debt, dividends etc.) that are settled at/near closing and (ii) cash-effective roll-over items (tax payables, payroll liabilities), both for which you need to reflect the payout either in (i) as a use in the S&U, (ii) in the CF statement of your model or (iii) in the EV-equity bridge at exit (deduct).
I'm not exactly following...If it's the same as cash-free and debt-free, wouldn't this be the S&U?
Uses Sources Purchase TEV $100.0 Term Loan $40.0 Transaction Fees $5.0 Existing Shareholder Equity $19.0 Financing Fees $0.6 New Sponsor Equity $46.6 Total $105.6 Total $105.6Do not think this is correct. Total Uses should always include the EV within the different items.
Total Uses = EV + minimum cash / overfunding + fees
Total Uses = 100 + 5 + 0.6 = 105.6
You could show the $5m minimum cash as a rollover of cash item (negative) and then show repayment of gross debt but that is more of a structuring issue. Either way you should be able to trace the EV of 100 within Total Uses or the S&U is incorrect as a general rule.
But this is not minimum cash. It is cash on b/s acquired by the purchaser which is NOT part of the EV. So EV (100.0) + min cash/cash on b/s (5.0) + fees (5.0+0.6) is 110.6. It would only be 105.6 if you take b/s cash to refinance net debt, i.e., cash is swept.
Equity purchase price 95mm
refinance net debt 5mm
financing fees 6mm
txn fees 5mm
Min cash to balance sheet 5mm
Rollover 19mm
new debt 40mm
Sponsor equity 57mm
The answer will depend on how much cash is on the B/S today since we're subtracting net debt from $100mm TEV to get the equity purchase price. I think some of the responses above are correct assuming there's $5mm cash today - below is what the S&U would look like if there was no cash on the B/S today
Typically you would include cash on b/s that is rolled over in the equity purchase price definition of the SPA (currently you are showing 90.0), so it would be 95.0 of which 20% is funded by the existing shareholders. But this is just a nuance, could also be structured/defined as you have outlined, i.e., 20% of 90.0.
It (at least at the moment) states gross debt, not net debt of 10m.
Agree Associate 1 is most correct. The fact that there is $5M on BS and the buyer also wants to fund $5M to BS are unrelated (could've chosen to put $3M to BS, etc.).
Here's my take with a few views:
This is correct.
CFDF and non CFDF below
CFDF:
Sources:
Equity investment: 51.6
New Debt: 40
Existing roll: 19
Total Sources: 110.6
Uses:
Equity Purchase Price: 95
existing ND: 5
Financing fees: 0.6
trxn fees: 5
min cash: 5
Total Uses: 110.6
Non CFDF:
Sources:
Equity investment: 51.6
New Debt: 40
Existing roll: 19
Existing Cash: 5
Total Sources: 115.6
Uses:
Equity Purchase Price: 95
existing debt: 10
Financing fees: 0.6
trxn fees: 5
min cash: 5
Total Uses: 115.6
This is correct when total line of last table is fixed.
In non-CFDF, do we have to include min. cash? I would assume, that that's already included in the equity purchase price, which include 5m of cash, no? In other words, CFDF of 110.6 is correct, but non-CFDF should also be 110.6 (because we assume the min. cash which is already on balance)?
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