Acme Manufacturing
Assumptions
Inputs Purchase Summary
Name Acme Manufacturing Management Ownership % 16.67%
Management Case 2 Financial Sponsor Ownership % 83.33%
Transaction Year 2010 Purchase Price Multiple 6.14x
Sales Growth Rate 10.0% Senior Debt (Senior + Revolver)/EBITDA 2.28x
Conservative Case 5.0% Subordinated Debt/EBITDA 1.36x
Management Case 10.0% Total Leverage 3.65x
Tax Rate 40.0%
Sources of Funds Return Analysis
Spread to Libor Uses Limit
Existing Cash 0 Exit Year 1 2 3 4 5
Revolver 8.0% 40 4,000 Trailing EBITDA 4,840 5,324 5,856 6,442 7,086
Senior - Term Loan 8.0% 10,000 EBITDA Multiple 6.14x 6.14x 6.14x 6.14x 6.14x
Sub Debt 12.0% 6,000 Enterprise Value 29,700 32,670 35,937 39,531 43,484
PIK 2.0%
Management Stock Roll-Over 2,000 Plus: Cash 50 50 50 50 50
Financial Sponsor Equity 10,000 Less: Debt 15,259 14,063 12,459 10,398 7,788
Total Sources 28,040 Total Equity Value 14,491 18,657 23,528 29,183 35,745
Uses of Funds Less Management Equity 2,415 3,109 3,921 4,864 5,958
Cash Proceeds to Seller 25,000 Equity to LBO Sponsors 12,076 15,547 19,607 24,319 29,788
Common Stock Seller 2,000
Transaction Fees 1,040
Total Uses 28,040 Sponsor IRR 20.8% 24.7% 25.2% 24.9% 24.4%
Multiple of Sponsor's Original Investment 1.2x
Purchase Price 27,000
Fees and Expenses
Advisory 340
Legal 250
Other Expenses - Accounting, Etc. 250
Term Loan 2.0% 200
Total 1,040
Acme Manufacturing
Income Statement
($ in 000's)
Historical 12/31/xx Projected 12/31/xx
2008 2009 2010 2011 2012 2013 2014 2015
Sales 25,000 26,000 28,000 30,800 33,880 37,268 40,995 45,094
Growth Rate 4.0% 7.7% 10.0% 10.0% 10.0% 10.0% 10.0%
COGS 15,000 15,600 16,800 18,480 20,328 22,361 24,597 27,057
Gross Profit 10,000 10,400 11,200 12,320 13,552 14,907 16,398 18,038
Gross Profit Margin 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
SG&A 6,000 6,250 6,800 7,480 8,228 9,051 9,956 10,951
Depreciation 500 600 700 786 986 1,186 1,386 1,586
Amortization 100 100 100 125 125 125 125 125
Operating Profit 3,400 3,450 3,600 3,929 4,213 4,546 4,932 5,376
Operating Profit Margin 13.6% 13.3% 12.9% 12.8% 12.4% 12.2% 12.0% 11.9%
SG&A as a % of Sales 24.0% 24.0% 24.3% 24.3% 24.3% 24.3% 24.3% 24.3%
Interest Expense/Income
Interest Expense 0 0 0 1,525 1,447 1,336 1,190 936 Circ 1
Interest Income 0 0 0 0 0 0 0 0
Total Interest Income (Expense) 0 0 0 1,525 1,447 1,336 1,190 936
Taxes 40.0% 1,360 1,380 1,440 962 1,107 1,284 1,497 1,776
Net Income 2,040 2,070 2,160 1,442 1,660 1,926 2,245 2,664
EBITDA
Opearting Profit 3,400 3,450 3,600 3,929 4,213 4,546 4,932 5,376
Depreciation 500 600 700 786 986 1,186 1,386 1,586
Amortization 100 100 100 125 125 125 125 125
EBITDA 4,000 4,150 4,400 4,840 5,324 5,856 6,442 7,086
EBITDA Margin 16.0% 16.0% 15.7% 15.7% 15.7% 15.7% 15.7% 15.7%
Acme Manufacturing
Balance Sheet
($ in 000's)
Pro forma
2008 2009 2010 Opening 2011 2012 2013 2014
Assets
Current Assets
Cash 500 750 2,300 0 50 50 50 50
Accounts Receivable 3,000 3,300 3,750 3,750 4,125 4,538 4,991 5,490
Inventory 2,000 3,000 4,000 4,000 4,400 4,840 5,324 5,856
Prepaids and Other 1,000 1,150 1,323 1,323 1,455 1,600 1,760 1,936
Current Assets 6,500 8,200 11,373 9,073 10,030 11,028 12,125 13,333
Plant Property & Equipment, Net 4,550 5,250 4,100 4,100 4,314 4,329 4,143 3,757
Goodwill and Intangibles, Net 200 100 0 18,718 18,593 18,468 18,343 18,218
Other Long Term Assets 50 60 70 70 77 85 93 102
Total Assets 11,300 13,610 15,543 31,960 33,014 33,909 34,705 35,411
Liabilities & Owners Equity
Current Liabilities
Accounts Payable 1,000 1,100 1,200 1,200 1,320 1,452 1,597 1,757
Accrued Expenses 1,500 1,725 1,984 1,984 2,182 2,400 2,640 2,904
Other Current Liabilities 500 575 661 661 727 800 880 968
Current Assets 3,000 3,400 3,845 3,845 4,230 4,652 5,118 5,629
Other Long Term Liabilities 65 70 75 75 83 91 100 110
Revoliving Line of Credit 0 525 653 40 815 1,485 2,053 2,506
Senior Loan 1,135 935 650 10,000 8,324 6,336 4,039 1,398
Subordinated Debt 6,000 6,200 6,400 6,000 6,120 6,242 6,367 6,495
Equity
Common and add'l paid in capital 1,000 1,000 1,000 0 0 0 0 0
Retained earnings 100 1,480 2,920 12,000 13,442 15,102 17,028 19,274
Total Liabilities & Owners Equity 11,300 13,610 15,543 31,960 33,014 33,909 34,705 35,411
Check 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Working Capital Ratios
Working Capital 3,000 4,050 5,228 5,228 5,750 6,325 6,958 7,654
Change in WC 1,050 1,178 523 575 633 696
AR Days 43.80 46.33 48.88 48.88 48.88 48.88 48.88 48.88
Inventory Turnover 7.50 5.20 4.20 4.20 4.20 4.20 4.20 4.20
Other current assets as % of Sales 4.0% 4.4% 4.7% 4.7% 4.7% 4.7% 4.7% 4.7%
Other Long Term Assets as % of Sales 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
A/P Days Outstanding 24.33 25.74 26.07 26.07 26.07 26.07 26.07 26.07
Accrued Expenses as a % of COGS 10.0% 11.1% 11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
Other Current Liabilities as a % of COGS 3.3% 3.7% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9%
Other Long Term Liabilities as a % of COGS 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
2015
50
6,039
6,442
2,130
14,661
3,171
18,094
113
36,039
1,933
3,195
1,065
6,192
121
1,164
0
6,624
0
21,937
36,039
0.000
8,419
765
48.88
4.20
4.7%
0.3%
26.07
11.8%
3.9%
0.4%
Acme Manufacturing
Transactional Balance Sheet
($ in 000's)
Transaction Financing Pro forma
2010 Adustments Adjustments Opening
Assets
Current Assets
Cash 2,300 (2,300) 0
Accounts Receivable 3,750 3,750
Inventory 4,000 4,000
Prepaids and Other 1,323 1,323
Current Assets 11,373 9,073
Plant Property & Equipment, Net 4,100 4,100
Goodwill and Intangibles, Net 0 18,718 18,718
Other Long Term Assets 70 70
Total Assets 15,543 31,960
Liabilities & Owners Equity
Current Liabilities
Accounts Payable 1,200 1,200
Accrued Expenses 1,984 1,984
Other Current Liabilities 661 661
Current Assets 3,845 3,845
Other Long Term Liabilities 75 75
Revoliving Line of Credit 653 (653) 40 40
Senior Loan 650 (650) 10,000 10,000
Subordinated Debt 6,400 (6,400) 6,000 6,000
Equity
Common and add'l paid in capital 1,000 (1,000) 0
Retained earnings 2,920 (2,920) 12,000 12,000
Total Liabilities & Owners Equity 15,543 31,960
Check 0.000 0.000
Acme Manufacturing
Goodwill
($ in 000's)
Pro forma Calculation of Goodwill
Opening Book value of assets 13,243
Assets less: liabilities assumed (3,920)
Current Assets 9,323
Cash 0 Fair market value adjustment to assets 0
Accounts Receivable 3,750 Adjusted net assets 9,323
Inventory 4,000
Prepaids and Other 1,323 Cost of purchase 27,000
Current Assets 9,073
New Goodwill 17,678
Plant Property & Equipment, Net 4,100
Other Long Term Assets 70
Liabilities
Current Liabilities
Accounts Payable 1,200
Accrued Expenses 1,984
Other Current Liabilities 661
Current Assets 3,845
Other Long Term Liabilities 75
Calculation: Tax Purposes Goodwill Amort.
Term 5 Fees 1,040 (% of Fees Tax Deductible? ) 60% 624
Term 15 New Goodwill 17,678 (% of Goodwill Tax Deductible? ) 0% 0
Term 15 Existing Goodwill 0 (% of Goodwill Tax Deductible? ) 0% 0
Balance 1 2 3 4 5
Transaction Fees 499 374 250 125 0
Goodwill 0 0 0 0 0
Acq. Goodwill 0 0 0 0 0
Fees 125 125 125 125 125
New Goodwill 0 0 0 0 0
Existing Goodwill 0 0 0 0 0
Total Amort. 125 125 125 125 125
Cummulative Amort. 125 250 374 499 624
Acme Manufacturing
Cash Flow Statement
($ in 000's)
2010 2011 2012 2013 2014 2015
Cash Flow from Operations
Sources
Net Income 1,442 1,660 1,926 2,245 2,664
Depreciation 786 986 1,186 1,386 1,586
Amortization 125 125 125 125 125
PIK Interest 120 122 125 127 130
Uses
Change in Working Capital 523 575 633 696 765
Change in Other (0) (1) (1) (1) (1)
Total Cash Flow After Operations 1,951 2,318 2,730 3,188 3,740
Cash Flow Investing
Capital Expenditures (1,000) (1,000) (1,000) (1,000) (1,000)
Total Cash Flow After Investing (1,000) (1,000) (1,000) (1,000) (1,000)
Cash Flow Financing
Draw (Amort) Revolver 775 670 568 453 (1,342)
Senior Term A Debt Amortization (1,676) (1,989) (2,297) (2,641) (1,398)
Subordinated Debt Amortization 0 0 0 0 0
Total Cash Flow After Financing (901) (1,318) (1,730) (2,188) (2,740)
Net Change in Cash
Beginning Cash Balance 0 50 50 50 50
Change in Cash Flow 50 0 0 0 0
Ending Cash Balance 0 50 50 50 50 50
Acme Manufacturing
Depreciation and Amortization
($ in 000's)
Years Average Life of Depreciation - Existing Assets 7
Years Average Life of Depreciation - New Expenditures 5
2008 2009 2010 2011 2012 2013 2014 2015
Beginning Depreciable Assets - Net 4,100
Depreciation of Existing Assets 586 586 586 586 586
Capital Expenditures - Year 1 1,000 200 200 200 200 200
Capital Expenditures - Year 2 1,000 200 200 200 200
Capital Expenditures - Year 3 1,000 200 200 200
Capital Expenditures - Year 4 1,000 200 200
Capital Expenditures - Year 5 1,000 200
Total Depreciation on New Capex 200 400 600 800 1,000
Total Depreciation 786 986 1,186 1,386 1,586
Plant Property & Equipment
Gross Plant Property & Equipment 4,100 4,314 4,329 4,143 3,757
Capex 1,000 1,000 1,000 1,000 1,000
Depreciation 786 986 1,186 1,386 1,586
Plant Property & Equipment, Net 4,550 5,250 4,100 4,314 4,329 4,143 3,757 3,171
Acme Manufacturing
Debt
($ in 000's)
2010 2011 2012 2013 2014 2015
Cash Flow Available for Financing Activities 951 1,318 1,730 2,188 2,740
Plus: Beginning Cash Balance 0 50 50 50 50
Less: Minimum Cash Balance (50) (50) (50) (50) (50)
Cash Available for Debt Repayment 901 1,318 1,730 2,188 2,740
Senior Term A
Beg. Balance 10,000 8,324 6,336 4,039 1,398
Scheduled Amortization (1,000) (1,000) (1,000) (1,000) (1,000) Maturity (years) 7
Additional Amortization (676) (989) (1,297) (1,641) (398) Amortization (years) 10
Ending Balance 10,000 8,324 6,336 4,039 1,398 0 Cash Flow Sweep Avail 75.0%
Interest Rate 8.0%
Interest Expense 733 586 415 217 56
Subordinated Debt
Beg. Balance 6,000 6,120 6,242 6,367 6,495
PIK Interest 120 122 125 127 130 Maturity (years) 7
Amortization 0 0 0 0 0 Amortization (years) 10
Ending Balance 6,000 6,120 6,242 6,367 6,495 6,624 Bullet Payment (?) Y
Bullet Payment YR 2020
PIK Interest Rate 2.0%
Cash Interest Rate 12.0%
Interest Expense 727 742 757 772 787
Revolver
Cash Available to Sweep to Revolver (775) (670) (568) (453) 1,342
Beg. Balance 40 815 1,485 2,053 2,506
Draw/(Repayments) 775 670 568 453 (1,342)
Ending Balance 40 815 1,485 2,053 2,506 1,164
Interest Expense 8.0% 65 119 164 200 93
Credit Statistics
Total Senior Debt 9,139 7,821 6,091 3,904 1,164
Total Debt 15,259 14,063 12,459 10,398 7,788
Total Senior Cash Interest 798 705 579 418 149
Total Cash Interest 1,525 1,447 1,336 1,190 936
EBITDA 4,840 5,324 5,856 6,442 7,086
Senior Debt / EBITDA 1.89x 1.47x 1.04x 0.61x 0.16x
Total Debt / EBITDA 3.15x 2.64x 2.13x 1.61x 1.10x
EBITDA / Senior Cash Interest 6.06x 7.55x 10.11x 15.41x 47.55x
EBITDA / Total Cash Interest 3.17x 3.68x 4.38x 5.42x 7.57x
Acme Manufacturing
DCF
($ in 000's)
1 2 3 4 5
2011 2012 2013 2014 2015 Terminal
EBIT 3,929 4,213 4,546 4,932 5,376 5,376
less: Taxes (40.0%) 40.00% (1,572) (1,685) (1,818) (1,973) (2,150) (2,150)
Not Operating Profit After Tax (NOPAT) 2,358 2,528 2,728 2,959 3,225 3,225
add: Depreciation 786 986 1,186 1,386 1,586 = capex
add: Amortization 125 125 125 125 125 125
less: Capital Expenditures (1,000) (1,000) (1,000) (1,000) (1,000) = deprec
less: Working Capital Requirements (523) (575) (633) (696) (765) (638)
Cash Flow 1,745 2,064 2,406 2,774 3,171 2,712
Weighted Average Cost of Capital:
Ind. Avg. % of Cost Cost
Capital Structure - Industry: Total Cap Struct. (Pre-tax) (After-tax) WACC
Senior Debt Rate 50.00% 8.00% 4.80% 2.40%
Subordinated Debt 25.00% 12.00% 12.00% 3.00%
Common Stock 25.00% 25.00% 25.00% 6.25%
100.00%
Ind. Avg. WACC = 11.65%
Present Value of Cash Flows
Present Value Factor 89.6% 80.2% 71.8% 64.4% 57.6%
Present Value 1,563 1,655 1,728 1,785 1,827
Total Present Value of Interim Cash Flows 8,559
Present Value Factor for Terminal Value 57.6%
Terminal Value Calculated using:
Terminal EBIDA Multiple: Gordon Growth Model:
Terminal EBITDA 7,086 Terminal Growth Rate 3.0%
Terminal EBITDA Multiple 6.14x Terminal Net Debt Free Cash Flow 2,712
Residual Enterprise Value 43,484 Residual TIC Value 32,293
Discounted Terminal Enterprise Value 25,063 18,613
Discounted Terminal Enterprise Value
Enterprise Value Conclusion :
Based on Terminal EBITDA Multiple 33,622
Based on Gordon Growth Model 27,172