John M.

Case LBO -2
How is the acquisition to be financed?
Answer: let's work out what we have to pay the VCs in order to fill the gap
Assets
Cash
Other current
Long term
Goodwill

$
$
$
$

3,262
3,236
2,184
9,084

Total

17,766

Costs
Current
Bank loan (Prime + 2% +10%CB)
Seller note
VC
VC debt percentage
VC equity percentage

Liabilities
Current
Bank loan
Seller note
VC plug
Managers' equity

$1,266
$6,000
$4,000
$6,000
$500
$17,766

Nominal
0%
12%
4%
9%

0%
12.00%
13.62%
25%
57%
43%

-4
$3,418.29
$2,581.71

0.24
$540

0.24
$540

Effective
Weight Product
0.00%
7.13%
0.00%
8.40% 33.77%
2.84%
8.17% 22.51%
1.84%
21.40% 33.77%
7.23%
30%
2.81%
0.84%
12.75%

0.24
$540

0.24

6.24

$540
$

$6,540
7,879

John Case Analysis

Year
VC Principal Repayment
VC Coupon payments
Total Repayments
Return @
NPV
NPV @ yr0
Equity
Total VC

2
1986

3
1987

540
540
25%
432

540
540
25%
345.6

540
540
25%
276.48

540
540
540
540
25%
25%
221.184 176.9472

1448
1702
1920
3500 1284.274 1338.867 1339.579
14443
2833
16%
17276

2114
1982
1308.16 1087.799

25%

4
1988

5
1989

3167
2833
6000

I) FCF#1: Original Core Business

FCF after financing:
NPV of FCF after financing
NPV of FCF @ yr 0
NPV of VC Equity
Total Equity of Core Business
II) FCF#2: Expansion Plan
Turnover
Profit (margin of 6%)
NPV of FCF after financing
NPV of FCF @ yr 0
III) Total Equity Valuation

1
1985

1000
60
53.2
877
$

18,153,278

1400
84
66.1

1960
117.6
82.0

2744
164.6
101.9

3073.3
184.4
101.2

6
1990

6000 assume refinancing or IPO

540
6540
25%
1714.422

ROE
growth

30%
3%
Term Val
2002 7414.815
974.5364 3609.394

Term Val
3442.1
206.5
100.5

764.9
372.3

John Case Analysis

Year
VC Principal
VC Repay
VC Coupon payments
Total Repayments
PV Factor
PV
Equity
PV @ yr0
PV including equity
V equals

1
1985
6000

2
1986
6000

3
1987
6000

4
1988
6000

5
1989
6000

540
540
0.80
432.00

540
540
0.64
345.60

540
540
0.51
276.48

540
540
0.41
221.18

540
540
0.33
176.95
V

6000

25%

6
1990
4800
1200
540
1740
0.26
456.13

2837
6000=3206+0.37V

If IPO can be done at

VCs can be given
In fact in the actual IPO they got

9,653
$ 30.00 million
32%
36%

7
1991
3600
1200
432
1632
0.21
342.26

8
1992
2400
1200
324
1524
0.17
255.68

9
1993
1200
1200
216
1416
0.13
190.05

10
1994
0
1200
108
1308
0.11
140.45