Question on Sources and Uses with capital injection
Hello everybody!! Would appreciate some help with sources and uses.
Resulting shareholding seems to be 33.1%
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Looks fine
Thank you. However, what happens if there is $xxm of new equity (instead of $yym)?
My bad, the first one was a little off as well. You're doing the deal at 71.2M EV - 40M debt = 31.2M existing equity.
Assuming all existing equity is rolled over, your sources and uses should look like this:
Rollover Debt $32m New Equity $13m Rollover Equity $31.2m TOTAL SOURCES $76.2m
Repayment of Existing Debt $8m Rollover Debt $32m Cash Injection $5m Rollover Equity $31.2m TOTAL USES $76.2m
If $7M injected:
Rollover Debt $32m New Equity $15m Rollover Equity $31.2m TOTAL SOURCES $78.2m
Repayment of Existing Debt $8m Rollover Debt $32m Cash Injection $7m Rollover Equity $31.2m TOTAL USES $78.2m
Basically, the valuation you get from 8.9x is pre-money so it should add up to more if there's additional capital injected.
Makes sense, thank you jec.
You cannot argue that the equity injection is "debt-like" unless it has "debt-like" features like preferred dividends, mandatory redemption, seniority, etc.
Regardless, whether the equity is "debt" or not does not matter for EV calculations. EV = equity + debt - cash (or equity + net debt). In other words, EV = the value of the assets of the company, excluding the cash on its balance sheet. If you inject $1bn into the company, equity goes up by $1bn and cash goes up by $1bn. EV does not change. If you repay debt, EV still does not change. If you have future capex to spend, EV still does not change.
Now, when you step forward in time and actually spend the capex, cash goes down but theoretically the capex is creating asset value. So EV only changes to the extent that the capex spent creates more or less value than the $ spent.
Thank you NuckFuts.
You can't count the $5mm of CAPEX as part of the $71.2mm, it's an addition outside of the acquisition. This is why it's helpful to break this into two uses:
PP $71.2mm Cash for CAPEX $5mm Uses = $76.2mm
Rollover debt (net of repayment) $32mm Rollover equity $31.2mm New equity from replacing debt and adding capital for CAPEX $8mm + $5mm = $13mm Sources = $76.2mm
At acquisition your EV is equity of $44.2mm + net debt of $27mm meaning that you own 29.4% of the equity but your revalued equity is less than what you paid for because you still have to spend the cash that you infused into the business. As soon as that CAPEX is paid for, your EV goes to $76.2mm since net debt increases with the $5mm of cash being spent and summarily your equity is then worth the $13mm you paid for.
Dude, you don't need to show rollover debt and rollover equity in a small equity injection. You typically show it in an LBO or acquisition scenario where some of the existing debt is taken out by new debt.
Your sources and uses for a tiny equity injection should just be:
New Equity: $13mm TOTAL SOURCES: $13mm
Repay Debt: $8mm Cash to Balance Sheet: $5mm TOTAL USES: $13mm
Or for $15mm...
New Equity: $15mm TOTAL SOURCES: $15mm
Repay Debt: $8mm Cash to Balance Sheet: $7mm TOTAL USES: $15mm
You would show a separate Pro Forma Capitalization Table showing 3 columns:
First column: status quo capitalization / balance sheet Second column: Adjustments showing +$13mm equity, -$8mm debt, +$5mm cash Third column: pro forma capitalization / balance sheet (just add the 2 columns together)
Below your pro forma cap table, you can show statistics like EV / EBITDA or Debt / EBITDA.
TLDR: Don't overcomplicate it by trying to show everything in the sources and uses. Split it up into two tables, S&U and Pro Forma Cap.
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