Leveraged Buyout Analysis for Company XYZ

Select Operating and Financial Data

Current Date 2012

Current Share Price $30.00

Fully Diluted Shares Outstanding 500.0
Market cap
Current Debt 600.0
Current Cash 100.0
Current Net Debt
Enterprise Value

LTM Revenue 6,000.0

LTM EBITDA 2,400.0
Free cash flows after debt paydown 480.0

EV / EBITDA multiple

LBO Assumptions
Exit Date 2016

LBO Debt Capacity (Net debt/EBITDA) 6.0x

Minimum cash balance 50.0

EBITDA multiple in exit year

Financial Sponsor Required Equity Return 25.0%

Select Operating and Financial Data

Projected Annual Forecast
2012A 2013 2014 2015 2016
Revenue 6,000.0
Revenue Growth Rate (%)

EBITDA 2,400.0
EBITDA Margin (%) 40.0%

Free cash flow after required debt paydown 480.0

FCF Margin (%) 8.0%

Cash 100.0
Debt 600.0
Net Debt 500.0

Debt Schedule
Projected Annual Forecast
2013 2014 2015 2016
LBO Debt, Beginning of Period
- Required paydown (1,000.0) (1,000.0) (1,000.0) (1,000.0)
- Optional paydown (after min cash balance)
LBO Debt, End of Period
Questions:
1.What is the implied Enterprise Value in the exit year?
2.What is the implied Equity Value at the exit year?
3.What is the maximum amount financial sponsors can invest in this company?

Questions:
1.How much do sponsors have to acquire this company and pay off it's debt?
2.What is the highest purchase price the sponsors would be willing to pay for XYZ shares today?

3.Given XYZ’s market trading level, is an LBO likely?

 Comments
Current date and exit date assumed to be Dec 31 for simplicity

Net Debt = Debt - Cash

Enterprise Value = Mkt cap + net debt

Current date and exit date assumed to be Dec 31 for simplicity

Based on current debt market conditions

Company must maintain a minimum cash balance for a "rainy day"

Generally assumed to be the same as the entry multiple

Higher required return due to increased debt and riskiness

d Annual Forecast
2017 2018 2019

Assumed to remain constant with revenues for simplicity

Assumed to remain constant with revenues for simplicity

Beginning cash balance plus change in cash over the period

From Debt Schedule below
Net Debt = Debt - Cash

d Annual Forecast
2017 2018 2019
LTM Debt * LBO Debt Capacity
(1,000.0) (1,000.0) (1,000.0) Assumed to be $1,000 per year
Excess cash on hand or generated throughout the year can be used to pay down debt
used to pay down debt
Leveraged Buyout Analysis for Company XYZ
Select Operating and Financial Data
Current Date 2012

Current Share Price $30.00

Fully Diluted Shares Outstanding 500.0
Market cap 15,000.0
Current Debt 600.0
Current Cash 100.0
Current Net Debt 500.0
Enterprise Value 15,500.0

LTM Revenue 6,000.0

LTM EBITDA 2,400.0
Free cash flows after debt paydown 480.0

EV / EBITDA multiple 6.5x

LBO Assumptions
Exit Date 2016

LBO Debt Capacity (Net debt/EBITDA) 6.0x

Minimum cash balance 50.0

EBITDA multiple in exit year 6.5x

Financial Sponsor Required Equity Return 25.0%

Select Operating and Financial Data

Projected Annual Forecast
2012A 2013 2014 2015 2016
Revenue 6,000.0 6,600.0 7,260.0 7,986.0 8,784.6
Revenue Growth Rate (%) 10.0% 10.0% 10.0% 10.0%

EBITDA 2,400.0 2,640.0 2,904.0 3,194.4 3,513.8

EBITDA Margin (%) 40.0% 40.0% 40.0% 40.0% 40.0%

Free cash flow after required debt paydown 480.0 528.0 580.8 638.9 702.8
FCF Margin (%) 8.0% 8.0% 8.0% 8.0% 8.0%

Cash 100.0 50.0 50.0 50.0 50.0

Debt 600.0 12,822.0 11,241.2 9,602.3 7,899.6
Net Debt 500.0 12,772.0 11,191.2 9,552.3 7,849.6

Debt Schedule
Projected Annual Forecast
2013 2014 2015 2016
LBO Debt, Beginning of Period 14,400.0 12,822.0 11,241.2 9,602.3
- Required paydown (1,000.0) (1,000.0) (1,000.0) (1,000.0)
- Optional paydown (after min cash balance) (578.0) (580.8) (638.9) (702.8)
LBO Debt, End of Period 12,822.0 11,241.2 9,602.3 7,899.6
Questions:
1.What is the implied Enterprise Value in the exit year?
2.What is the implied Equity Value at the exit year?
3.What is the maximum amount financial sponsors can invest in this company?

Questions:
1.How much do sponsors have to acquire this company and pay off it's debt?
2.What is the highest purchase price the sponsors would be willing to pay for XYZ shares today?

3.Given XYZ’s market trading level, is an LBO likely?

 Comments
Current date and exit date assumed to be Dec 31 for simplicity

Net Debt = Debt - Cash

Enterprise Value = Mkt cap + net debt

Current date and exit date assumed to be Dec 31 for simplicity

Based on current debt market conditions

Company must maintain a minimum cash balance for a "rainy day"

Generally assumed to be the same as the entry multiple

Higher required return due to increased debt and riskiness

d Annual Forecast
2017 2018 2019
9,663.1 10,629.4 11,692.3
10.0% 10.0% 10.0%

3,865.2 4,251.7 4,676.9 Assumed to remain constant with revenues for simplicity
40.0% 40.0% 40.0%

773.0 850.3 935.4 Assumed to remain constant with revenues for simplicity
8.0% 8.0% 8.0%

50.0 50.0 50.0 Beginning cash balance plus change in cash over the period
6,126.5 4,276.2 2,340.8 From Debt Schedule below
6,076.5 4,226.2 2,290.8 Net Debt = Debt - Cash

d Annual Forecast
2017 2018 2019
7,899.6 6,126.5 4,276.2 LTM Debt * LBO Debt Capacity
(1,000.0) (1,000.0) (1,000.0) Assumed to be $1,000 per year
(773.0) (850.3) (935.4) Excess cash on hand or generated throughout the year can be used to pay down debt
6,126.5 4,276.2 2,340.8
 22,693.6
14,844.0
6,080.1

20,480.1
$39.96
Yes; 33%
premium
used to pay down debt