Special Sits PE Case Study Example

The webinar for this case is TODAY, July 6th, at 5:00pm EDT. If you miss it, it will be replayed for free on the homepage on August 6th

Even though recruiting season is not necessarily around the corner, I thought I'd share the below with the community. If anyone has a case study/modelling test coming up, going through the below will prove beneficial and give you an idea what you should expect. You should be able to complete everything in 60 minutes.

Overview Special Situations Partners LLP is looking to invest in an Oilfield Services company in Europe. In the last reported year, the company generates $50mm in revenue and had an EBIT margin of 38%. We can buy the asset for 7.0x EBITDA (cash- and debt-free) and can use 80% total debt, of which 75% is senior debt (5% interest rate) and 25% is Mezzanine debt (15% total interest rate, 7% cash and 8% PIK). Interest on cash is 0.5%.

In order to facilitate growth, the company needs $10mm in growth capex upon acquisitions and the current management team has signalled interest to invest $10mm as common equity. Our investment would be structured as preferred equity.

Holding period is assumed to be 5 years, with transaction costs estimated to be 2% of firm value. The company's revenues are growing at 3% over the forecast period, the EBITDA margin stays stable throughout the forecast period, D&A is assumed to be 2% of revenue per year. Maintenance capex is equal to D&A. The tax rate is 10% and there is no minimum cash balance and all excess cash flow is distributed as dividends.

Upon exit, any returns up to 10% are distributed 2/3 to preferred equity holders and the remainder to common equity holders. Between returns of 10-20%, preferred equity payout goes down by 20% with the remainder being distributed to common equity holders. Above 20%, preferred equity payout goes down by 30% and the remainder goes to common equity holders.

What is the IRR and money multiple for both preferred and common equity holders?

There will be a webinar related to this topic on July 7th, 5pm et (with a free replay on the frontpage August 7th) //www.wallstreetoasis.com/event/webinar-private-equ…