LBO Case Study AnalysisSubscribe
Got this recent case study for LBO/Returns Analysis modeling, and really need some help trying to figure out how to attack this - can anyone provide some help or answers (DM is also preferred)!
- How do I structure this out (steps - i.e., make sources/uses, then P&L (do I go to interest and taxes), then CFS, then DCF; then debt returns/capital structure waterfall, etc.)?
- Proper method of attacking these questions.
- How to practice to do this within 2 hours?
- Sponsor acquires a US business for $300m and puts in place the following structure:
- Sponsor invests $100m
- $125m of external bank debt
- The seller leaves in $75m
- Sponsor own 95% of the ordinary shares of the company with management owning the remaining at 5%
- Sponsor's money is in the form of a loan note and attracts an initial 15% non-cash pay coupon which is rolled-up annually. This note is subordinate to the bank debt and the vendor paper.
- The bank debt attracts a coupon of 8% per annum cash pay and is repaid 5% in year 1, 10% in year 2 and 12.5% in year three.
- The seller paper is also in the form of a loan note and attracts a 12.5% non-cash pay coupon which accrues annually. This note is subordinated to the bank debt.
- It is intended to raise some more bank debt at the end of year one in order to refinance the seller paper. The amount that can be raised is either:
- For the purposes of this exercise, assume that this new debt is put in as a new facility with the same terms as the existing facility and that the existing facility stays in place.
- Assume there is no cash sweep.
- The forecasts at the time of the deal were EBITDA is $40m in year 1, $42.5m in year 2 and $45m in year 3 (historic EBITDA at acquisition was $37.5m)
- It is thought that capex over this period will be $10m per annum (equal to depreciation).
- Change in working capital is 0 (not source or use)
- Tax will be charged at 30%.
13. Assume an exit after 3 years at 3 different enterprise values $300m, $350m and $400m.
- What is Sponsor's IRR, and multiple of investment at each of the three enterprise values at each of the 4 levels of refinancing?
- What are the issues that we need to consider in deciding what the level of refinancing should be?
- What is your recommended level of refinancing?
- Which EV exit is realistic given the data provided and what return would you expect.
- What return should you be looking for with this kind of business
- Is the shareholder loan note interest tax deductible