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Estimated LBO Valuation - Summary
Demo Company
LBO Scenario #1a, Case 1
(Dollars and Shares in Thousands, Except Per Share Amounts)

1.   Executive Summary:
 
  A.   Member's assumptions:
 
  The auction value of Plant, Property and Equipment at the end of the first forecast year   $18,000
 
  The dollar amount of operating expenses which will not be incurred after the business is sold (i.e., "add-backs"):  
 
        1st year after business is sold   $150
        2nd year after business is sold   $175
        3rd year after business is sold   $200
        4th year after business is sold   $225
 
  The amount of the selling price the seller is willing to finance   $500
 
  The annual rate of return on equity investment (ROR) objective of the buyer   31.0%
 
  The EBITDA multiple used to determine the selling price of the business at the end of the buyer's four years of ownership   7.0
 
  The interest rates to be paid on senior (bank) debt and subordinated debt:  
 
        Senior debt   9.0%
        Subordinated debt   12.0%
 
  B.   Results:
 
  The estimated LBO value of seller's company at end of first forecast year   $89,237
 
  The computed annual rate of return on equity investment (ROR) of the buyer   31.0%
 
 
2.   The Deal:
 
  A.   Gross selling price of seller's assets at the end of the first forecast year   $89,237
 
  Seller's forecast of year one operating earnings   $8,205
  Seller's forecast of year one EBITDA   $9,797
 
  Gross selling price, divided by forecasted year one operating earnings   10.88
  Gross selling price, divided by forecasted year one EBITDA   9.11
 
  B.   Total selling price of the seller's assets at the end of first forecast year
 
  Gross selling price of the seller's assets at the end of the first forecast year   $89,237
  Transaction expenses   $1,562
 
  Total selling price of the seller's assets at the end of the first forecast year   $90,799
 
  C.   Intangible assets recorded by the buyer at the end of the first forecast year
 
  Total selling price of the seller's assets at the end of the first forecast year   $90,799
  Fair market value of the seller's tangible assets at the end of the first forecast year   $33,686
 
  Intangible assets recorded by the buyer at the end of the first forecast year   $57,113
 
  Buyer's annual intangible asset amortization   $3,808
 
 
3.   Seller's Outcome:
 
  A.   Net pretax sales proceeds to the seller
 
  Gross selling price of the seller's assets at end of the first forecast year   $89,237
  Liabilities of the seller to be paid by the seller from the gross selling price   (24,904)
 
  Net pretax sales proceeds to the seller   $64,333
 
  Net worth of the seller's business at the end of the first forecast year   $6,769
 
  Net pretax sales proceeds to the seller, minus the net worth of the seller's business   $57,564
  Net pretax sales proceeds to the seller, divided by the net worth of the seller's business   9.50
 
 
4.   Buyer's Outcome:
 
  A.   Buyer's sources and uses of funds at the time of its purchase of the seller's business
 
  Sources of funds:  
 
  Line of credit   $8,488
  Term loans   9,500
  Subordinated debt   54,651
  Preferred stock   0
  Common stock   18,160
 
  $90,799
  Uses of funds:  
 
  Gross selling price of the seller's assets   $89,237
  Transaction expenses   1,562
 
  $90,799
 
  B.   Buyer's interest rates on debt
 
  Interest rate on senior debt   9.0%
 
  Interest rate on subordinated debt   12.0%
 
  C.   Buyer's senior lender requirements
 
  Buyer's current maturities of term debt:  
 
  Beginning of buyer's year 1   $0
  End of buyer's year 1   $1,800
  End of buyer's year 2   $1,800
  End of buyer's year 3   $1,800
  End of buyer's year 4   $1,800
 
  Buyer's senior debt availability schedule:  
 
  Accounts Receivable   80.0%
  Inventory   35.0%
  Plant, Property and Equipment (Net)   50.0%
 
  D.   Gross selling price of the buyer's assets at the end of four years of ownership   $148,001
 
  Buyer's forecast of year four operating earnings   $19,551
  Buyer's forecast of year four EBITDA   $21,143
 
  Gross selling price, divided by forecasted year four operating earnings   7.57
  Gross selling price, divided by forecasted year four EBITDA   7.00
 
  E.   Net pretax sales proceeds to the buyer's equity and subordinated debt investors
 
  Gross selling price of the buyer's assets at the end of four years of ownership   $148,001
  Liabilities of the buyer to be paid by the buyer from the gross selling price   $68,707
 
  Net pretax sales proceeds available to buyer's equity and subordinated debt investors   $79,294
 
  F.   Buyer's subordinated debt investors return on investment after four years of ownership
 
  Net sales proceeds to subordinated debt investors for equity warrants   $25,858
  Subordinated debt investors' original subordinated debt investment   $54,650
  Subordinated debt investors' fully diluted ownership interest in the buyer's net sales proceeds   32.6%
  Subordinated debt investors' pretax annual rate of return   20.0%
  Subordinated debt investors' pretax annual rate of return objective   20.0%
 
  G.   Buyer's equity investors' pretax return on investment after four years of ownership
 
  Net selling proceeds to equity investors   $53,435
  Equity investors' original equity investment   $18,160
  Equity investors' pretax annual rate of return   31.0%
  Equity investors' pretax annual rate of return objective   31.0%