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LBO Modeling
Private Equity Case Study: TPG’s $3 Billion
Buyout of J. Crew
• Understand debt basics (interest rates, principal repayment)
• Completed the 3-statement projection model homework
• Understand LBO concept
Prerequisites…
• Learn/Review Accounting
• Need to Learn to “Speed Build”
• PE Interviews – Required!
• Always in the News
Why an LBO Model?
The Case Study (1 / 3)Private Equity Interview Case Study – Part 2
In this case study, you’ll analyze the recent $3.0 billion buyout of J. Crew by TPG and Leonard Green.
Announced on November 23, 2010, the deal represented a rebound in the LBO and debt markets and was one of the larger deals since the start of the credit crunch in mid-2007.
J. Crew is a specialty retailer with over 300 retail stores in the US. It sells higher-end clothing and accessories via its stores and directly via mail order and its website.
In part 2 of this case study, you’ll modify the 3-statement model you created earlier to turn it into an LBO model instead. Please use the following assumptions for this part of the case study:
The Case Study (2 / 3)Part 2 – Purchase Price & Debt Assumptions
Assume an offer price of $43.50 per share, just as in the real transaction, and that all diluted shares are acquired. Assume that TPG and Leonard Green use $1.85 billion worth of debt, just as in the real transaction, with the following tranches, interest rates, and principal repayments:
Revolver: $250 million (L + 250 interest) Term Loan A: $500 million (L + 350 interest, 10% annual repayment) Term Loan B: $500 million (L + 500 interest, 5% annual repayment) Subordinated Notes: $600 million (11% fixed interest, no annual repayment)
Assume that the Revolver is undrawn initially. For LIBOR, please use the LIBOR curve included with the attached Excel file.
The minimum cash balance should be $50 million and you should assume a 5-year buyout period with an exit in FY 2016.
The Case Study (3 / 3)Discussion Questions
Once you’ve completed the LBO model, be prepared to discuss the following questions:
1. Based on the returns, would you invest in J. Crew along with TPG and Leonard Green? Why or why not?
2. How did you determine the EBITDA exit multiple to use? How do you know that it’s accurate? 3. Would the transaction work with more or less debt used, or with a higher EBITDA exit multiple? 4. How else could you change the assumptions to get a higher return? 5. What additional information would you need to make an investment decision?
You have 3 hours to complete the LBO model and then 30 minutes to present your findings to the committee.
• Adjust BS / CFS
• Modify Income Statement
• Assumptions
Game Plan:
• Debt Schedules & Linking
• Returns & Case Answers
Assumptions:Transaction Assumptions
Company Name: J.Crew Group, Inc. Transaction Close Date: 1/31/2011Current Share Price: 37.65$ Equity Purchase Price: 3,015$ Offer Premium: 15.6% Transaction Enterprise Value: 2,607 Offer Price Per Share: 43.50$ EBITDA Purchase Multiple: 7.5 x% Debt Used: 61% Debt Used: 1,850
Purchase Price Calculations: Diluted Shares:
Common Shares: 63.79 Diluted Shares: 69.30 Exercise
Name Number Price DilutionDiluted Equity Value: 3,015$ Tranche A 0.761 3.53$ 0.699
Less: Cash & Investments (432) Tranche B 1.974 7.62 1.628 Plus: Debt 24 Tranche C 3.027 14.29 2.033 Plus: Noncontrolling Interests - Tranche D 2.215 32.73 0.549 Plus: Preferred Stock - RSUs 0.598 0.598 Plus: Other Liabilities - Total 5.507
Enterprise Value: 2,607$
More Assumptions:Base EBITDA Exit Multiple: 7.0 x
Advisory Fee %: 0.30%Financing Fee %: 0.60%Legal & Misc. Fees: $5
LIBOR Units: 10,000Minimum Cash Balance: 50$
The minimum cash balance should be $50 million and you should assume a 5-year buyout period with an exit in FY 2016.
Debt Assumptions:Debt Assumptions
%: $ Amount:Total Debt Used: 1,850$ Interest Rates: Principal Repayment %:Revolver: 14% 250 Revolver: L + 250 Revolver: N/ATerm Loan A: 27% 500 Term Loan A: L + 350 Term Loan A: 10.0%Term Loan B: 27% 500 Term Loan B: L + 500 Term Loan B: 5.0%Subordinated Note: 32% 600 Subordinated Note: 11.00% Subordinated Note: 0.0%
Revolver: $250 million (L + 250 interest) Term Loan A: $500 million (L + 350 interest, 10% annual repayment) Term Loan B: $500 million (L + 500 interest, 5% annual repayment) Subordinated Notes: $600 million (11% fixed interest, no annual repayment)
Sources & UsesSources & Uses
Sources: Uses:
Term Loan A: 500$ Equity Value of Company: 3,015$ Term Loan B: 500 Repay Existing Debt: 24 Subordinated Note: 600 Advisory Fees: 9 Investor Equity: 1,464 Capitalized Financing Fees: 11 Total Sources: 3,064$ Legal & Misc. Fees: 5
Total Uses: 3,064$
Pop Quiz
Q: How would Sources & Uses Change if the PE firm assumed J. Crew’s existing debt instead?
A) We would remove the “Repay Existing Debt” item.
B) We would add a “Debt Assumed” item under both Sources and Uses.
C) We would add a “Debt Assumed” item only under Sources.
Final Assumption: GoodwillGoodwill Creation & Balance Sheet Adjustments
Goodwill Calculation: Fixed Asset Write-Up:Equity Purchase Price: 3,015$ PP&E Write-Up %: 10.0%Less: Seller Book Value: (562) PP&E Write-Up Amount: 21 Plus: Write-Off of Existing Goodwill: - Depreciation Period (Years): 8
Total Allocable Purchase Premium: 2,453$ Intangible Asset Write-Up:
Less: Write-Up of PP&E: (21)$ Purchase Price to Allocate: 2,453 Less: Write-Up of Intangibles: (491) % Allocated to Intangibles: 20.0%Less: Write-Down of DTL: - Intangibles Write-Up Amount: 491 Plus: New Deferred Tax Liability: 206 Amortization Period (Years): 5
Total Goodwill Created: 2,147$
Financing Fees Amortization Period: 5 New Deferred Tax Liability: 206$
Existing Income Statement…Income Statement
Historical Projected2009 2010 2011 2012 2013 2014 2015 2016
Revenue: 1,335$ 1,428$ 1,578$ 1,775$ 1,988$ 2,207$ 2,428$ 2,646$ 2,858$ Cost of Goods Sold: 873 882 957 1,133 1,257 1,383 1,508 1,628
Gross Profit: 555 696 818 855 949 1,044 1,138 1,230
SG&A Expense: 412 430 470 547 608 668 729 787 Depreciation & Amortization: 46 55 63 68 75 83 90 98
Depreciation of PP&E Write-Up: - - - New Intangibles Amortization: - - - Amortization of Financing Fees: - - - Operating Income: 97 211 285 240 266 293 320 345
Interest Income / (Expense): (6) (5) (2) Pre-Tax Income: 91 206 283 240 266 293 320 345
Income Tax Provision: 37 83 114 97 107 118 129 139
Net Income: 54 123 169 143 159 175 191 206 EBITDA: 143$ 266$ 348$ 308$ 342$ 376$ 410$ 443$
LBO Effects…
Financing Fees Amortization Period: 5
Income Statement, Post-LBO
Projected2012 2013 2014 2015 2016
1,988$ 2,207$ 2,428$ 2,646$ 2,858$ 1,133 1,257 1,383 1,508 1,628
855 949 1,044 1,138 1,230
547 608 668 729 787 68 75 83 90 98
3 3 3 3 3 98 98 98 98 98
2 2 2 2 2 137 164 190 217 242
137 164 190 217 242 55 66 77 87 97
82 98 114 129 145 308$ 342$ 376$ 410$ 443$
Income StatementHistorical
Revenue: 1,335$ Cost of Goods Sold:
Gross Profit:
SG&A Expense:Depreciation & Amortization:
Depreciation of PP&E Write-Up:New Intangibles Amortization:Amortization of Financing Fees:Operating Income:
Interest Income / (Expense):Pre-Tax Income:
Income Tax Provision:
Net Income:EBITDA:
Pop Quiz
Q: What’s the flaw with the way we just modified the income statement?
A) Depreciation and Amortization are non-cash items so they shouldn’t be there at all.
B) We need better estimates for the periods for the PP&E write-up and intangibles.
C) We can’t just divide the amount by the period, because the period may be less than 5 years.
Balance Sheet: AssetsBalance Sheet
Historical Transaction Adjustments2009 2010 2011
Assets:Current Assets:
Cash & Cash-Equivalents: 146$ 298$ 432$ Merchandise Inventories: 187 190 206 Prepaid Expenses & Other: 58 31 49
Total Current Assets: 392 519 687
Long-Term Assets:Net PP&E: 202 195 205 Goodwill: - - - Intangible Assets: - - - Capitalized Financing Fees: - - - Other Assets: 21 25 20
Total Long-Term Assets: 222 219 225
Total Assets: 614$ 739$ 912$
BS Adjustments: AssetsGoodwill Creation & Balance Sheet Adjustments
Goodwill Calculation:Equity Purchase Price: 3,015$ Less: Seller Book Value: (562) Plus: Write-Off of Existing Goodwill: -
Total Allocable Purchase Premium: 2,453$
Less: Write-Up of PP&E: (21)$ Less: Write-Up of Intangibles: (491) Less: Write-Down of DTL: - Plus: New Deferred Tax Liability: 206
Total Goodwill Created: 2,147$
Balance SheetTransaction Adjustments Projected
2011 Debit Credit 2011Assets:
Current Assets:Cash & Cash-Equivalents: 432$ -$ -$ 432$ Merchandise Inventories: 206 - - 206 Prepaid Expenses & Other: 49 - - 49
Total Current Assets: 687 687
Long-Term Assets:Net PP&E: 205 21 - 226 Goodwill: - 2,147 - 2,147 Intangible Assets: - 491 - 491 Capitalized Financing Fees: - 11 - 11 Other Assets: 20 - - 20
Total Long-Term Assets: 225 2,894
Total Assets: 912$ 3,581$
Pop Quiz
Q: Wait a minute, why do Capitalized Financing Fees count as an asset?
A) Because they reduce the amount of taxes the company will pay in the future.
B) Because they correspond to another item (debt) that remains on the balance sheet for years.
C) Both of the above.
Balance Sheet: L & EBalance Sheet
Historical Transaction Adjustments2009 2010 2011
Liabilities & Shareholders' Equity:Current Liabilities:
Revolver: -$ -$ -$ Accounts Payable: 120 128 135 Other Current Liabilities: 88 108 108
Total Current Liabilities: 208 235 243
Long-Term Liabilities:Existing Long-Term Debt: 100 49 24 Term Loan A: - - - Term Loan B: - - - Subordinated Note: - - - Long-Term Deferred Tax Liability: - - - Other Long-Term Liabilities: 81 78 83
Total Long-Term Liabilities: 181 127 107
Total Liabilities: 389$ 363$ 350$
Shareholders' Equity:Common Stock & APIC: 586 614 631 Treasury Stock: (4) (4) (4) Sponsor Common Equity:Retained Earnings: (357) (234) (65)
Total Shareholders' Equity: 225$ 376$ 562$
Total Liabilities & SE: 614$ 739$ 912$
Liabilities & Shareholders' Equity:Current Liabilities:
Revolver: -$ -$ -$ -$ Accounts Payable: 135 - - 135 Other Current Liabilities: 108 - - 108
Total Current Liabilities: 243 243
Long-Term Liabilities:Existing Long-Term Debt: 24 24 - - Term Loan A: - - 500 500 Term Loan B: - - 500 500 Subordinated Note: - - 600 600 Long-Term Deferred Tax Liability: - - 206 206 Other Long-Term Liabilities: 83 - - 83
Total Long-Term Liabilities: 107 1,889
Total Liabilities: 350$ 2,131$
Shareholders' Equity:Common Stock & APIC: 631 631 - - Treasury Stock: (4) (4) - - Sponsor Common Equity: - 1,464 1,464 Retained Earnings: (65) (50) - (14)
Total Shareholders' Equity: 562$ 1,450$
Total Liabilities & SE: 912$ 3,581$
BS Adjustments: L&EGoodwill Creation & Balance Sheet Adjustments
Goodwill Calculation:Equity Purchase Price: 3,015$ Less: Seller Book Value: (562) Plus: Write-Off of Existing Goodwill: -
Total Allocable Purchase Premium: 2,453$
Less: Write-Up of PP&E: (21)$ Less: Write-Up of Intangibles: (491) Less: Write-Down of DTL: - Plus: New Deferred Tax Liability: 206
Total Goodwill Created: 2,147$
Sources & Uses
Sources: Uses:
Term Loan A: 500$ Term Loan B: 500 Subordinated Note: 600 Investor Equity: 1,464 Total Sources: 3,064$
Balance SheetTransaction Adjustments Projected
2011 Debit Credit 2011
Advisory Fees: 9 Capitalized Financing Fees: 11 Legal & Misc. Fees: 5
Pop Quiz
Q: Why do we wipe out all of J. Crew’s shareholders’ equity? Don’t they still have retained earnings?
A) Because the PE firm gets everything, including the retained earnings, in the transaction.
B) Because the PE firm purchases everything and replaces it with their own equity.
C) It’s just an accounting convention and doesn’t actually affect the model.
Projected Balance Sheet: AssetsBalance Sheet
Projected2012 2013 2014 2015 2016
Assets:Current Assets:
Cash & Cash-Equivalents:Merchandise Inventories: 244 270 297 324 350 Prepaid Expenses & Other: 58 64 71 77 83
Total Current Assets: 302 335 368 401 433
Long-Term Assets:Net PP&E: 219 235 253 271 292 Goodwill: 2,147 2,147 2,147 2,147 2,147 Intangible Assets:Capitalized Financing Fees:Other Assets: 20 20 20 20 20
Total Long-Term Assets: 2,386 2,402 2,419 2,438 2,459
Total Assets: 2,688$ 2,737$ 2,788$ 2,840$ 2,892$
Projected Balance Sheet: L&ELiabilities & Shareholders' Equity:
Current Liabilities:Revolver:Accounts Payable: 160 177 195 213 230 Other Current Liabilities: 126 140 154 168 182
Total Current Liabilities: 286 318 349 381 411
Long-Term Liabilities:Existing Long-Term Debt: - - - - - Term Loan A:Term Loan B:Subordinated Note:Long-Term Deferred Tax Liability: 206 206 206 206 206 Other Long-Term Liabilities: 83 83 83 83 83
Total Long-Term Liabilities: 289 289 289 289 289
Total Liabilities: 575$ 606$ 638$ 669$ 700$
Shareholders' Equity:Common Stock & APIC: - - - - - Treasury Stock: - - - - - Sponsor Common Equity: 1,464 1,464 1,464 1,464 1,464 Retained Earnings: 68 166 279 409 554
Total Shareholders' Equity: 1,532$ 1,630$ 1,744$ 1,873$ 2,018$
Total Liabilities & SE: 2,107$ 2,236$ 2,382$ 2,542$ 2,718$
Projected CFS:Cash Flow Statement
Projected2012 2013 2014 2015 2016
Net Income: 82$ 98$ 114$ 129$ 145$ Depreciation & Amortization: 68 75 83 90 98 Depreciation of PP&E Write-Up: 3 3 3 3 3 New Intangibles Amortization: 98 98 98 98 98 Amortization of Financing Fees: 2 2 2 2 2
Changes in Operating Assets & Liabilities:Merchandise Inventories: (38) (27) (27) (27) (26) Prepaid Expenses & Other: (9) (6) (6) (6) (6) Other Assets: - - - - - Accounts Payable & Other: 25 18 18 18 17 Other Liabilities: 19 14 14 14 13
Cash Flow from Operations: 250 274 298 321 344
Capital Expenditures: (82) (91) (100) (109) (118) Cash Flow from Investing: (82) (91) (100) (109) (118)
Cash Flow Available for Debt Repayment: 168 183 198 212 226
Revolver:Term Loan A:Term Loan B:Subordinated Note:
Total Cash Flow Used to Repay Debt: - - - - -
Net Change in Cash & Cash Equivalents: 168 183 198 212 226
Beginning Cash Balance: 432 600 783 980 1,192 Ending Cash Balance: 600$ 783$ 980$ 1,192$ 1,418$
Debt Schedules – Interest Rates
Debt & Interest Schedules
LIBOR Curve:Fixed
Interest Rate Assumptions: LIBOR + InterestRevolver: 2.50%Term Loan A: 3.50%Term Loan B: 5.00%Subordinated Note: 11.00%
Projected2012 2013 2014 2015 2016
0.30% 0.30% 0.50% 1.00% 2.00%
2.80% 2.80% 3.00% 3.50% 4.50%3.80% 3.80% 4.00% 4.50% 5.50%5.30% 5.30% 5.50% 6.00% 7.00%
11.00% 11.00% 11.00% 11.00% 11.00%
Interest Rates: Principal Repayment %:Revolver: L + 250Term Loan A: L + 350Term Loan B: L + 500Subordinated Note: 11.00%
Debt Schedules – Repayment
Sources of Funds:Beginning Cash Balance: 432 600 783 980 1,192 Less: Minimum Cash Balance: (50) (50) (50) (50) (50) Plus: Cash Flow Available for Debt Repay: 168 183 198 212 226
Subtotal Before Revolver: 550 733 930 1,142 1,368 Revolver Borrowing Required: - - - - -
Total Sources of Funds: 550 733 930 1,142 1,368
Debt Schedules – Repayment
Debt Assumptions
%: $ Amount:Total Debt Used: 1,850$ Interest Rates:Revolver: 14% 250 Term Loan A: 27% 500 Term Loan B: 27% 500 Subordinated Note: 32% 600
Principal Repayment %:Revolver: N/ATerm Loan A: 10.0%Term Loan B: 5.0%Subordinated Note: 0.0%
Explaining the MIN Formula:
• =MIN(Prior Year Debt, Beginning Balance * Yearly Amortization)
• Prior Year Debt = 400, Beginning Balance = 500, Yearly Amortization = 10%...
• Repay 50, since 50 < 400
• Prior Year Debt = 20, Beginning Balance = 500, Yearly Amortization = 10%...
• Repay 20, since 20 < 50
Debt Schedules – RepaymentOptional Debt Repayment:
Revolver: - - - - - Term Loan A: 450 450 450 450 450 Term Loan B: 25 208 405 475 475 Subordinated Note: - - - - -
Optional Repayment Total: 475 658 855 925 925
Cash Generated on Balance Sheet: - - - 142 368 Total Uses of Funds: 550$ 733$ 930$ 1,142$ 1,368$
Explaining the MAX/MIN Formula:
• =MAX(MIN(Prior Year Revolver, Cash Flow Available – Debt Repaid So Far), 0)
• Revolver = 100, Cash Flow Available = 100, Debt Repaid So Far = 50…
• Repay 50, since 50 < 100• Revolver = 20, Cash Flow Available = 100, Debt
Repaid So Far = 50…• Repay 20, since 20 < 50• Revolver = 100, Cash Flow Available = 100,
Debt Repaid So Far = 120• Repay 0, since 0 > -20
Debt Schedules – Repayment
Final Version of Debt Schedules:
Pop Quiz
Q: Why do we need the MAX function in the optional debt repayment formula?
A) Because the Subtotal Before Revolver – All Payments So Far might be negative.
B) Because the Prior Year Term Loan – Mandatory Repayment part might be negative.
C) We should always include MAX(Formula, 0) around repayment formulas to error-check the model.
Debt Schedules – InterestInterest Income / (Expense) Calculations:
Revolver: -$ -$ -$ -$ -$ Term Loan A: (19) (19) (20) (23) (28) Term Loan B: (27) (27) (28) (30) (35) Subordinated Note: (66) (66) (66) (66) (66) Cash: 2 2 4 11 26
Net Interest Income / (Expense): (110) (109) (109) (108) (102)
Linking – Debt PaymentsRevolver: - - - - - Term Loan A: (500) - - - - Term Loan B: (50) (183) (198) (70) - Subordinated Note: - - - - -
Total Cash Flow Used to Repay Debt: (550) (183) (198) (70) -
Linking – Net Change in Cash
Balance SheetProjected
2012 2013 2014 2015 2016Assets:
Current Assets:Cash & Cash-Equivalents: 50$ 50$ 50$ 192$ 418$ Merchandise Inventories: 244 270 297 324 350 Prepaid Expenses & Other: 58 64 71 77 83
Total Current Assets: 352 385 418 593 851
Linking – Long-Term Assets
Long-Term Assets:Net PP&E: 237 251 265 282 300 Goodwill: 2,147 2,147 2,147 2,147 2,147 Intangible Assets: 392 294 196 98 - Capitalized Financing Fees: 9 7 4 2 - Other Assets: 20 20 20 20 20
Total Long-Term Assets: 2,806 2,718 2,633 2,549 2,467
Total Assets: 3,157$ 3,103$ 3,051$ 3,142$ 3,318$
Linking – LiabilitiesLiabilities & Shareholders' Equity:
Current Liabilities:Revolver: -$ -$ -$ -$ -$ Accounts Payable: 160 177 195 213 230 Other Current Liabilities: 126 140 154 168 182
Total Current Liabilities: 286 318 349 381 411
Long-Term Liabilities:Existing Long-Term Debt: - - - - - Term Loan A: - - - - - Term Loan B: 450 267 70 - - Subordinated Note: 600 600 600 600 600 Long-Term Deferred Tax Liability: 206 206 206 206 206 Other Long-Term Liabilities: 83 83 83 83 83
Total Long-Term Liabilities: 1,339 1,156 958 889 889
Total Liabilities: 1,625$ 1,473$ 1,308$ 1,269$ 1,300$
Revolver: - - - - - Term Loan A: (500) - - - - Term Loan B: (50) (183) (198) (70) - Subordinated Note: - - - - -
Total Cash Flow Used to Repay Debt: (550) (183) (198) (70) -
Linking – Income StatementIncome Statement
Projected2012 2013 2014 2015 2016
Revenue: 1,335$ 1,988$ 2,207$ 2,428$ 2,646$ 2,858$ Cost of Goods Sold: 1,133 1,257 1,383 1,508 1,628
Gross Profit: 855 949 1,044 1,138 1,230
SG&A Expense: 547 608 668 729 787 Depreciation & Amortization: 68 75 83 90 98
Depreciation of PP&E Write-Up: 3 3 3 3 3 New Intangibles Amortization: 98 98 98 98 98 Amortization of Financing Fees: 2 2 2 2 2 Operating Income: 137 164 190 217 242
Interest Income / (Expense): (101) (89) (83) (74) (66) Pre-Tax Income: 36 74 108 142 176
Income Tax Provision: 14 30 43 57 71
Net Income: 21 44 64 85 105 EBITDA: 308$ 342$ 376$ 410$ 443$
Make Sure Circularity Works…
Calculating ReturnsInvestor Returns
EBITDA:EBITDA Multiple:Enterprise Value:Investor Equity:
2011
348$ 7.5 x
2,607 (1,464)
2012 2013 2014 2015 2016
443$ 7.0 x
3,099 - - - - 2,669
Calculating Returns
Investor Returns
EBITDA:EBITDA Multiple:Enterprise Value:Investor Equity:
IRR:
2011 2012 2013 2014 2015 2016
348$ 443$ 7.5 x 7.0 x
2,607 3,099 (1,464) - - - - 2,669
12.8%
Back to the Case Study…Discussion Questions
Once you’ve completed the LBO model, be prepared to discuss the following questions:
1. Based on the returns, would you invest in J. Crew along with TPG and Leonard Green? Why or why not?
2. How did you determine the EBITDA exit multiple to use? How do you know that it’s accurate? 3. Would the transaction work with more or less debt used, or with a higher EBITDA exit multiple? 4. How else could you change the assumptions to get a higher return? 5. What additional information would you need to make an investment decision?
You have 3 hours to complete the LBO model and then 30 minutes to present your findings to the committee.
Sensitivity TablesSensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
Exit Multiple:12.8% 3.0 x 4.0 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 11.0 x
54.59$ 45.0% (24.9%) (13.7%) (6.4%) (0.8%) 3.7% 7.5% 10.9% 13.9% 16.6%52.71$ 40.0% (21.8%) (11.6%) (4.6%) 0.7% 5.2% 8.9% 12.3% 15.2% 17.9%50.83$ 35.0% (19.0%) (9.5%) (2.9%) 2.3% 6.6% 10.4% 13.6% 16.6% 19.2%48.95$ 30.0% (16.4%) (7.5%) (1.1%) 3.9% 8.2% 11.8% 15.1% 18.0% 20.6%47.06$ 25.0% (13.9%) (5.5%) 0.6% 5.6% 9.7% 13.3% 16.5% 19.4% 22.0%45.18$ 20.0% (11.4%) (3.5%) 2.4% 7.2% 11.3% 14.9% 18.0% 20.9% 23.5%43.30$ 15.0% (9.0%) (1.5%) 4.2% 8.9% 12.9% 16.5% 19.6% 22.4% 25.0%41.42$ 10.0% (6.7%) 0.5% 6.1% 10.7% 14.6% 18.1% 21.2% 24.0% 26.6%39.53$ 5.0% (4.4%) 2.5% 8.0% 12.5% 16.4% 19.8% 22.9% 25.7% 28.2%37.65$ 0.0% (2.1%) 4.6% 9.9% 14.3% 18.2% 21.6% 24.6% 27.4% 29.9%
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
% Debt Used:12.8% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 80.0%
54.59$ 45.0% 3.9% 3.8% 3.8% 3.8% 3.7% 3.6% 3.5% 3.4% 3.3%52.71$ 40.0% 4.9% 5.0% 5.0% 5.1% 5.1% 5.2% 5.3% 5.4% 5.5%50.83$ 35.0% 6.0% 6.1% 6.3% 6.4% 6.6% 6.8% 7.0% 7.3% 7.7%48.95$ 30.0% 7.1% 7.3% 7.6% 7.8% 8.1% 8.4% 8.8% 9.2% 9.8%47.06$ 25.0% 8.3% 8.6% 8.9% 9.2% 9.6% 10.0% 10.6% 11.2% 12.0%45.18$ 20.0% 9.5% 9.8% 10.2% 10.7% 11.2% 11.7% 12.4% 13.2% 14.1%43.30$ 15.0% 10.7% 11.2% 11.7% 12.2% 12.8% 13.4% 14.2% 15.2% 16.3%41.42$ 10.0% 12.1% 12.6% 13.1% 13.7% 14.4% 15.2% 16.1% 17.2% 18.5%39.53$ 5.0% 13.4% 14.0% 14.6% 15.3% 16.1% 17.0% 18.1% 19.3% 20.8%37.65$ 0.0% 14.9% 15.5% 16.2% 17.0% 17.9% 18.9% 20.1% 21.4% 23.1%
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Case Study Answers
• Investment: No – only way to get solid returns is multiple expansion or lower price
• Exit Multiple: Select range based on purchase multiple
• Tweaks: Debt barely changes anything; need multiple expansion or higher growth to win
• Additional Information: Expansion plans, customer/store data, competition, cost cutting possibilities, retail indicators
• Learn More Advanced Topics
• Download the Model and Files
• Go Practice Yourself
What Next?
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