The PE firm Triangle LP bought a tire manufacturer, TireGel Co, 2 years ago in a leveraged buyout (LBO) . At the time of the LBO, TireGel generated revenue of $250 million and EBITDA of $30 million, and Triangle LP paid an 8x EV/EBITDA multiple for TieGel.  Prio to the LBO, TireGel had zero net debt.

PMK Bank provided a loan to finance 60% of the LBO. At the time of the LBO, theloan had a 4 year maturity, but it can be repaid in advance with no penalty. The annual interest rate on the loan is 15%, and at maturity (or if the loan is repaid in advance) the principal amount must be repaid in full in a balloon payment (thus, the size of the final balloon payment equals the initial size of the loan).
 

During the 2 years since the LBO, TireGel's revenue and EBITDA have grown at an annual growth rate of 20%. TireGel's CEO expects a more modest 15% growth during the following 2 years.


a) What IRR and multiple of invested capital (MoIC) will Triangle LP generate if it sells TireIce 4years after the LBO at an expected 9.5x EV/EBITDA multiple?


b) Triangle LP has just received an unexpected offer to sell TireGel today. What IRR and MolC will Triangle LP generate if it sells TireGel today at the same 8x EV/EBITDA multiple at which it initially invested?


c) What is Triangle LP's expected IRR as of today of not selling TireGel now, and insteadsticking to its original plan of selling TireGel 4 years after the LBO at an expected 9.5xEV/EBITDA multiple?

Answer rating: 100% (QA)

To calculate the IRR and multiple of invested capital MoIC for Triangle LP in different scenarios we need to consider the initial investment the cash ... View the full answer