I was wondering if anyone is interested in discussing a full blown LBO example? I am talking, structure of deal, leverage, financing options, interest rates, ratios, financial statement repercussions, etc. let me begin with some starter points: 1. Privately held, office products company, named ABC, nationwide sales in the region of $400mm, projected to grow at around 12-15% (on the upside). 1 division growing historically at 15-18% p.a (60% of sales, differentiated product), the other at a miserly 3% (price sensitive market player, measly margins). Company has a distinct strategy - increase marketing for the better looking division, ride out the other one, maybe dissolve it in a few years if the need be. 2. What would the following look like: what % would be financed by debt and equity? whether financial buyers would want any warrants, under what conditions? how is the interest rate environment today? what rates and % of total debt would you see for senior debt (revolving facility, senior term loan), sub debt (fixed loan, how many years, bullet payment?, etc) 3. what leverage ratio would you consider? how would interest payments increase annually? what other additional payments woudl you see? woudl cutting operating expenses be a must, if margins are around 5-15% of sales, depending on division of the firm? 4. what story would you sell to the strategic buyers? how would you pitch this to financial buyers? who do you think is more likely to consider this deal? what if management doesnt mind sticking around after the LBO as well? Anyone interested in going back and forth on this? Views, opinions, thoughts? I just want to know what others would look at, what you would consider? what are the talking points? what could be a potential no-no going forward? Looking forward to seeing how fellow AFs think… Anything would be appreciated.
Dunder Mifflin?
Deal structures can very widely with the size of the deal. The size of the deal is generally dependent on EBITDA - not company sales. What’s the EBITDA for the company?
Great, I forgot to include that. EBITDA for current year, say is $50 million, projected to grow at 10% per year, for the following 5 years or so. A few years ago, a 6x ebitda multiple looked fine, then last year, even an 8x multiple wasnt unheard of, and financing was readily available.
Any input?