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LBO Case Study 1

DWD Capital Partners is considering acquiring a controlling stake in Algeco through a leveraged buyout. They have been presented the opportunity by an investment bank and need to prepare an LBO model for their investment committee. The summary provides key assumptions for the proposed 100% acquisition of Algeco including financing terms, management compensation, forecasted financials and costs of the transaction.

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443 views2 pages

LBO Case Study 1

DWD Capital Partners is considering acquiring a controlling stake in Algeco through a leveraged buyout. They have been presented the opportunity by an investment bank and need to prepare an LBO model for their investment committee. The summary provides key assumptions for the proposed 100% acquisition of Algeco including financing terms, management compensation, forecasted financials and costs of the transaction.

Uploaded by

Zexi WU
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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LBO

LBO Case Study

You are an analyst at investment fund DWD Capital Partners. Investment bank Fould, Pereire & Associés
presents in you March 2004 the opportunity of acquiring a controlling stake in Algeco, listed on the Paris
stock exchange, and to structure a Leveraged Buy-Out (LBO) on that company. The stake will be put up
for sale very shortly by German company TUI.

Based on the attached information provided by Fould, Pereire & Associés, please prepare an LBO model
for your investment committee.

Assumptions

 Let’s assume a 100% acquisition of Algeco


 The acquisition of TUI’s stake in Algeco will be completed through a specially created acquisition
holding called Cabanon S.A.S. This holding is 98% owned by DWD Capital Partners III and 2%
owned by managers of Algeco.
 Let’s assume the transaction is completed on January 1st, 2005.
 Reimbursement of debts and payment of interest is assumed on December 31st each year
 Dividend for year N is assumed to be paid in year N, not in year N+1
 The total net income available for distribution in a given fiscal year is actually distributed as
dividend, up to the amount of available cash
 Let’s assume a corporate tax rate at 33.3%

Financing of the transaction

For a 100% acquisition of Algeco, the financing available to you is the following:
o Senior debt tranche A : 200m€
Maturity 7 ans
Amortisable yearly : Year 1 : 10% ; Year 2 : 12.5% ; Year 3 : 12.5% ; Year 4 : 15% ; Year
5 : 20% ; Year 6 : 15% ; Year 7 : 15%
Interest : EURIBOR + 250 bps
Annual payment of interest

o Senior debt tranche B : 100m€


Maturity 8 years
Bullet reimbursment at maturity
Interest : EURIBOR + 300 bps
Annual payment of interest

o Mezzanine debt: 125m€


Maturity 10 years
Bullet reimbursment at maturity
Interest : EURIBOR + 900 bps
Capitalised interest

DWD Capital Partners III has granted mezzanine holders call options on 6% of Cabanon
SAS’s share capital. The strike price of these options will be equal to the nominal value of
Cabanon SAS shares at the time of the LBO.
LBO

Management Package

DWD Capital Partners III has granted the management of Algeco call options on 3% of
Cabanon SAS’s share capital. The strike price of these options will be equal to the
nominal value of Cabanon SAS shares at the time of the LBO.

Other Assumptions

 The forecast EBIT margin of Algeco is the following:


o 2004 : 18,0%
o 2005 : 18.2%
o 2006 : 18,4%
o 2007 : 18,6%
o 2008 : 18,8%
o From 2009 onwards : 19,0%

 The transaction costs at entry will amount to 5% of total enterprise value and will be amortised in
two equal installments over the first two fiscal years following the transaction
 The transaction costs at entry will amount to 1% of total enterprise value
 The operating costs of holding Cabanon SAS will amount to 0.8m€ per year
 The net debt of the operating company (Algeco) will be reimbursed at the time of the LBO
thanks to a shareholder loan by the holding company. This shareholder loan will bear no interest.
Let’s assume the net debt at the operating company (Algeco) at the time of the transaction
amounts to 141.0m€
 EURIBOR : 4.5%

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