C3. AB&C Capital Management, a private equity firm, is negotiating to acquire 90% of a private...

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C3. AB&C Capital Management, a private equity firm, is negotiating to acquire 90% of a private household goods manufacturer, which has had EBITDA of $19.5M, $20.2M, $18.7M, $18.8M and $19.8M in the past five years. An independent consultant gives a valuation of $95M for the company, but the owner family asked for $90M for its 90% shares, making the total valuation $100M for the company. A good number of similar transactions in the past 3 years were all in the range of 4.9x and 5.2x. Imagine you are the GP of AB&C Capital with the support of your investment bank to provide a syndicated loan package of $50M and you know you can sell some of the unused real estate that the company owns for $20M without any negative impact on the business operations and up to half of the EBITDA will be in cash and sufficient to service debts and other cash distributions. Assuming that you will be able to bring improvement to increase the company's EBITDA, what would be your investment recommendation? Assuming further that after holding for three years, you managed to increase the company's EBITDA to $22.0M and the total debt of the company brought down to $20.0M. If the market for the purchase and sale of a similar business still supports the same range of multiples of 4.9x and 5.2x, what is the maximum sale price you would get and what would be the corresponding average IRR for the holding period? C3. AB&C Capital Management, a private equity firm, is negotiating to acquire 90% of a private household goods manufacturer, which has had EBITDA of $19.5M, $20.2M, $18.7M, $18.8M and $19.8M in the past five years. An independent consultant gives a valuation of $95M for the company, but the owner family asked for $90M for its 90% shares, making the total valuation $100M for the company. A good number of similar transactions in the past 3 years were all in the range of 4.9x and 5.2x. Imagine you are the GP of AB&C Capital with the support of your investment bank to provide a syndicated loan package of $50M and you know you can sell some of the unused real estate that the company owns for $20M without any negative impact on the business operations and up to half of the EBITDA will be in cash and sufficient to service debts and other cash distributions. Assuming that you will be able to bring improvement to increase the company's EBITDA, what would be your investment recommendation? Assuming further that after holding for three years, you managed to increase the company's EBITDA to $22.0M and the total debt of the company brought down to $20.0M. If the market for the purchase and sale of a similar business still supports the same range of multiples of 4.9x and 5.2x, what is the maximum sale price you would get and what would be the corresponding average IRR for the holding period?

Answer rating: 100% (QA)

My investment recommendation would be to acquire the company ... View the full answer