LBO Analysis

FINC 5670/6670/6676 ‐ Yost

LBO ANALYSISCHAPTER 5

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

THE PROCESS

• STEP 1: LOCATE AND ANALYZE THE NECESSARYINFORMATION

• STEP 2: BUILD THE PRE-LBO MODEL

• STEP 3: INPUT TRANSACTION STRUCTURE

• STEP 4: COMPLETE THE POST-LBO MODEL

• STEP 5: PERFORM THE LBO ANALYSIS

STEP 2: BUILD THE PRE-LBO MODEL

A. BUILD HISTORICAL AND PROJECTEDINCOME STATEMENT THROUGH EBIT

B. INPUT OPENING AND PROJECTEDBALANCE SHEET ITEMS

C. BUILD CASH FLOW STATEMENT THROUGHINVESTING ACTIVITIES

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

BUILD HISTORICAL AND PROJECTED INCOME STATEMENT THROUGH EBIT

A.

INPUT OPENING AND PROJECTED BALANCE SHEET ITEMS

B.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

BUILD CASH FLOW STATEMENT THROUGH INVESTING ACTIVITIES

C.

STEP 3: INPUT TRANSACTION STRUCTURE

A. ENTER PURCHASE PRICE ASSUMPTIONS

B. ENTER FINANCING STRUCTURE INTOSOURCES AND USES

C. LINK SOURCES AND USES TO BALANCE SHEETADJUSTMENT COLUMNS

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

ENTER PURCHASE PRICE ASSUMPTIONSA.

ENTER FINANCING STRUCTURE INTO SOURCES AND USES

B.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

LINK SOURCES AND USES TO BALANCE SHEET ADJUSTMENT COLUMNS

C.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

STEP 4: COMPLETE THE POST-LBO MODEL

A. BUILD DEBT SCHEDULE

B. COMPLETE PRO FORMA INCOME STATEMENTFROM EBIT TO NET INCOME

C. COMPLETE PRO FORMA BALANCE SHEET

D. COMPLETE PRO FORMA CASH FLOW STATEMENT

BUILD DEBT SCHEDULEA.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

COMPLETE PRO FORMA INCOME STATEMENT FROM EBIT TO NET INCOME

B.

COMPLETE PRO FORMA BALANCE SHEETC.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

COMPLETE PRO FORMA CASH FLOW STATEMENT

D.

STEP 5: PERFORM THE LBO ANALYSIS

A. ANALYZE FINANCING STRUCTURE

B. PERFORM RETURNS ANALYSIS

C. DETERMINE VALUATION

D. CREATE TRANSACTION SUMMARY PAGE

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

ANALYZE FINANCING STRUCTUREA.

PERFORM RETURNS ANALYSISB.

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

DETERMINE VALUATIONC.

DCF range is derived using 8.5% - 9.5% WACC and 1.5% - 2.5% Perpetuity Growth Rate, assuming 5.0% Sales Growth and 10% EBITDA Growth

Entry Multiple range; 11.5x – 12.5x

Exit Multiple of 12.0x

Target IRR of 20% - 25%

Range of 11.0x – 13.0x

Range of 9.0x – 12.0x

$1,898

$2,320

$2,426

$2,302

$2,531

$2,742

$2,636

$3,034

$1,500 $1,700 $1,900 $2,100 $2,300 $2,500 $2,700 $2,900 $3,100

Methodology Implied Enterprise Value (1) Key Assumptions

Discounted Cash Flow Analysis

Leveraged Buyout Analysis

Selected Precedent Transactions Analysis

Trading Comparables Analysis

LBO Analysis

FINC 5670/6670/6676 ‐ Yost

CREATE TRANSACTION SUMMARY PAGE

D.