You are interested to acquire the following private equity firm. The private firm operates in Australia and its main business is in logistics. The current revenue is $15,500,000 per year. Given that it is a growing company, you think that the company's revenue would grow between 3% to 8% every year over the next five years. Make a choice on what revenue growth rate you wish to use. You would fund your purchase with 60-70% debt (make a choice) and the remaining with equity. As a seasoned private equity investor, you would pay an EBITDA multiple of 6 to 9 for the company. Make your own choice on what multiple to use.

Based on the information provided by the firm, they have been generating an EBITDA margin of 20% before the COVID-19 pandemic. However, since COVID-19 the EBITDA margin has dropped to 15% in the most recent financial statement. The firm convinces you that they are on the right track of recovering and the EBITDA margin would subsequently recover to 25%. You have to make a choice on what EBITDA margin to be used. You also believe that by actively managing the company, you would be able to grow the EBITDA margin by 1% for each of the next five years.

The initial fees and expenses associated with the acquisition are $5,000,000. You have an exit strategy of five years and would sell the company after five years at the same EBITDA multiple you chose above. Assume that interest rate is 5%, the yearly capital expenditure is $2,000,000 and the tax rate is 30%.

1) Show your operating projections over the next five years and the profit projection in year 5 if you acquire the firm using leverage buyout. Consider this as your base case scenario. Briefly explain and discuss your numbers. You want to make sure that the readers know what you are doing. (10 marks)

Answer rating: 100% (QA)

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