MEGAFUND LBO Test (Hard)
Instructions:
• Assume you acquire 100% of this business and hold it for 5 years. What is your IRR and MoM?
• Add IRR and MoM sensitivities on Entry and Exit Multiple
• Would you invest in the company?
• Time: 2 hours with no template, 1.5 hours with template
Transaction Assumptions:
• Transaction Date: 31st December 2023
• Enter at 15.0x EV / NTM EBITDA
• Exit at 15.0x EV / NTM EBITDA
• 20.0% Tax Rate
• Minimum Cash to Balance Sheet: €100m
• Transaction Expenses: €20m
• Intangible Assets: 10.0% of Step-Up of Equity, amortised over 15 years
• Deferred Tax Liability: Amortised over 15 years
Company Assumptions:
• 100 million units sold in 2023, growing at 8.5% annually
• Price of €10 per unit in 2023, growing at 2.5% annually
• €600m Gross Profit in 2023 with margin expected to remain flat
• €300m EBITDA in 2023, with Opex as a % of Revenue expected to decline by 0.5% each year
• D&A: 2.5% of Revenue
• Capex: 2.5% of Revenue
• Accounts Receivable: 30 Days Sales
• Inventory: 60 Days COGS
• Prepaid Expenses: 2.0% of Revenue
• Accounts Payable: 60 Days COGS
• Accrued Liabilities: 2.0% of Revenue
• Existing Net Debt as per Balance Sheet provided in Excel file
Debt Assumptions:
• Total Leverage: 6.0x LTM EBITDA
• Recap Debt:
o Recap in 2026 at 6.0x Total Debt / EBITDA, dividend paid to shareholders
o Interest Rate: S + 400bps
o 1.0% Floor
o Seniority over PIK and Senior Notes, can be paid down immediately in the same year
• PIK Debt: 3.5x LTM EBITDA
o Interest Rate: 8.0%
o 2.0% Financing Fee
• Senior Notes:
o Interest Rate: 7.5%
o 2.0% Financing Fee
• Revolver:
o €200m Capacity
o 1.0% Floor
o Interest Rate: S + 500bps
• SONIA Curve: 3.0% flat
• Financing fees amortised over 7 years
• Cash sweep on Revolver, Recap Debt and Senior Notes
• Interest calculated on average balance
• Assume that existing debt is refinanced
