Rollups in IRR calculations - how to address?
So let's say you're given a case where the sponsor with majority ownership of a company makes several smaller roll-up acquisitions. If it doesn't say whether or not the sponsor uses their own money, do you assume the company uses their cash on hand, assuming they have some, and the rest is sponsor contribution?
Also how does this happen in the real world? Like, for APFH's 2016 rollup of Allied, they paid $60mn which they had on hand in this case. But in earlier transactions when they were private, it seems unlikely that APFH had cash on hand to pay for some of these rollups / bigger deals (Landshire and Better Bakery in 2015, and a large three-way merger in 2010). Would Oaktree have committed more equity for these transactions, particularly the one in 2010?
What do you mean if it doesn't say? If the debt is broadly syndicated, you can get a hold of the public lender pres which will have the sources and uses of cash for the transaction. In many cases the sponsor has to put in additional equity to finance the transaction.
Agreed. If the sponsor adds extra equity, obviously that's an additional inflow of equity for purposes of IRR calc.
Thanks for the response / sorry for my delay. Where would you find these?
More likely than not, it wouldn't be available. Just make up some reasonable pro forma leverage and plug equity. Assuming this is for interviews, the point of the case study isn't to see if you can find meaningless data points, it's just to see if you understand conceptually how LBOs work and how to account for future add-ons. Worry about the important stuff.
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