Acova Radiateurs:

Leverage Buy Out

Group 7 :
CRBV

Anand Patel: 18P072

Sylvia George: 18P083
Rishab Kapur: 18P101
Shreya Shyamsukha: 18P111
Cardozo Jason: 18P134
 Acova Radiateurs
Market segments:
• Hot water radiators (50% of sales)
• Towel-drying radiators (40% of sales)
• Electric radiators (10% of sales)
Production:
• One site
• Warehouse full capacity 1800 units
• 500peaple, 5 days, 3 shifts
• Successful- high quality
• Production process could be optimized
• Buy machinery more cheaply from suppliers
 Acova Radiateurs
• 30-35% annual return required by investors
• BC's standard valuation technique focused on the
• returns to the equity investors
• The FCF were used to repay the debt, so that the value to the
equity investor resided in the terminal value achieved when
the company was eventually resold.
• Acova had to realize certain operational improvements

Competition and Future Outlook:

France market players:
• C.I.C.H 16% market share
• Finimetal 24%
• Acova 18.5% total radiator market--- leader in decorative radiators
• Expand market into other European countries
• Formed in 1986
 Acova Radiateurs
Organize:
• Management buyouts
• late stage development situations
• Worked closely with existing management
• Instead of relying on asset sales, generally sought
companies whose internally generated cash flow
was sufficient to repay the buyout debt.
Competitors in LBO market:
• LBOFrance
• Fonds Partenaire
 Debt Repayment Schedule
And Discount Rate For CCF
1990 1991 1992 1993 1994 1995 1996 1997 1998
Yearly Debt Schedule:
Interest payments-Sr. debt (12%) 12,350 22,200 21,000 19,200 16,800 13,800 10,800 7,800 4,800
Ending debt-Sr. debt 185,000 175,000 160,000 140,000 115,000 90,000 65,000 40,000 0

Interest payments-Sub. debt (13.5%) 4,388 8,775 8,775 8,775 8,775 8,775 8,775 8,775 8,775
Ending debt-Sub. debt 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 0

Interest payments-WC loan (11%) 1,749 3,129 3,904 3,688 3,609 3,439 2,555 858 -1,762
Ending debt-WC loan 28,441 35,495 33,523 32,806 31,261 23,226 7,802 -16,017 30,643

Total Ending Debt 282,621 276,968 267,009 248,165 224,534 194,744 158,014 113,393 59,813
Overall Cost Of Debt 12.25% 12.23% 12.25% 12.27% 12.31%

Rf 10.06%
Rm 5%
Unlevered beta 1
Cost Of Capital
15.12%
Rf+Ba(Rm-Rf)
 Valuation Using CCF
Projected
1990 1991 1992 1993 1994
EBIT 43,120 55,989 70,897 77,206 85,077
EBIT(1-t) 27,166 35,273 44,665 48,640 53,599
Total interest expense -18,487 -34,104 -33,679 -31,663 -29,184 -26,014
Depreciation 19,000 20,000 25,000 25,000 25,000
Amortization of acquisition costs (3,333) (3,333) (3,333) 0 0
Capital expenditures -20,000 -25,000 -25,000 -25,000 -25,000
Change in net working capital (7,898) (7,461) (8,245) (8,676) (9,544)
Free Cash Flow 21,601 26,145 39,753 39,964 44,055 47,248
Interest Tax Shield 6,840 12,618 12,461 11,715 10,798 9,625
Capital Cash Flow 28,441 38,764 52,214 51,679 54,853
Terminal Value 722,664
NPV 24,705 29,250 34,225 29,425 27,130 357,423
Firm Value 502157
 Backward Calculation
using ECF
Backward Calculation using ECF
1990 1991 1992 1993 1994
Firm Value 312523 349351 392470 442961 502157
Debt Value 278441 275495 258523 237806 211261
Equity Value 34082 73856 133947 205155 290896
D/E 8.17 3.73 1.93 1.16 0.73
Overall Cost Of Debt 12.25% 12.23% 12.25% 12.27% 12.31%
Post tax Overall Cost Of Debt 7.72% 7.70% 7.72% 7.73% 7.76%
Cost Of Equity 41.16% 27.01% 21.27% 18.82% 17.44%
Levered Beta 6.15 3.35 2.22 1.73 1.46
WACC@37% Tax Rate 11.36% 11.78% 12.34% 12.86% 13.36%
Tax Rate
37%
 Firm Valuation
(In thousand)

Free Cash Flow 21600.6 26145.07 39753.11 39963.15 44054.51

WACC 11.83 11.85 11.87 11.94 12.04 12.74

19315.350 24955.58
Present Value (FCF) 21 20900.291 28391.849 25450.465 8

Terminal Value 903790

Firm Value 1022803.6

Thank you
Appendix