financial modeling overview presented to:
DESCRIPTION
Financial Modeling Overview Presented to:. December 2, 2010. AGENDA. Modeling Overview Assumptions Transactional Balance Sheet Goodwill Debt Page Re-linking financials DCF. OVERVIEW. We have our basic model with is, bs, cf, d&a, and debt schedules We need to forecast : - PowerPoint PPT PresentationTRANSCRIPT
Financial Modeling Overview
Presented to:
December 2, 2010
2
AGENDA
I. Modeling Overview
II. Assumptions
III. Transactional Balance Sheet
IV. Goodwill
V. Debt Page
VI. Re-linking financials
VII. DCF
3
We have our basic model with is, bs, cf, d&a, and debt schedules
We need to forecast :
Determine what our deal will look like
Create a transactional balance sheet
Calculate Goodwill
Update the debt page
Ensure that the balance sheet balances
OVERVIEW
4
Step 1, we need to come up with our assumptions about the proposed transaction
What do we know?
We know that a financial sponsor (investment firm) is looking to acquire Acme Manufacturing from the retiring owner for $27 million dollars (cash free and debt free transaction)
They were able to secure a senior term loan for $10 million, a subordinated loan for $6 million, and a revolving line of credit of $4 million (to help pay fees – not all of this line will be drawn at close)
The retiring owner is willing to roll $2 million of their proceeds into the new company so that they will still retain a portion of the business going forward
ASSUMPTIONS
5
ASSUMPTIONS
Acme ManufacturingAssumptions
Inputs Purchase SummaryName Acme Manufacturing Management Ownership %Management Case Financial Sponsor Ownership %Transaction Year 2010 Purchase Price MultipleSales Growth Rate 10.0% Senior Debt (Senior + Revolver)/EBITDA
Conservative Case 5.0% Subordinated Debt/EBITDAManagement Case 10.0% Total Leverage
Tax Rate 40.0%
Sources of Funds Return AnalysisSpread to Libor Uses Limit
Existing Cash 0 Exit Year 1 2 3 4 5Revolver 8.0% 0 0 Trailing EBITDASenior - Term Loan 8.0% 0 EBITDA MultipleSub Debt 12.0% 0 Enterprise ValuePIK 2.0%Management Stock Roll-Over 0 Plus: CashFinancial Sponsor Equity 0 Less: DebtTotal Sources 0 Total Equity Value
Uses of Funds Less Management EquityCash Proceeds to Seller 0 Equity to LBO SponsorsCommon Stock Seller 0Transaction Fees 0Total Uses 0 Sponsor IRR
Multiple of Sponsor's Original InvestmentPurchase Price 0
Fees and ExpensesAdvisory 0Legal 0Other Expenses - Accounting, Etc. 0Term Loan 2.0% 0Total 0
6
ASSUMPTIONS
Acme ManufacturingAssumptions
Inputs Purchase SummaryName Acme Manufacturing Management Ownership % 16.67%Management Case 2 Financial Sponsor Ownership % 83.33%Transaction Year 2010 Purchase Price Multiple 6.14xSales Growth Rate 10.0% Senior Debt (Senior + Revolver)/EBITDA 2.28x
Conservative Case 5.0% Subordinated Debt/EBITDA 1.36xManagement Case 10.0% Total Leverage 3.65x
Tax Rate 40.0%
Sources of Funds Return AnalysisSpread to Libor Uses Limit
Existing Cash 0 Exit Year 1 2 3 4 5Revolver 8.0% 40 4,000 Trailing EBITDASenior - Term Loan 8.0% 10,000 EBITDA MultipleSub Debt 12.0% 6,000 Enterprise ValuePIK 2.0%Management Stock Roll-Over 2,000 Plus: CashFinancial Sponsor Equity 10,000 Less: DebtTotal Sources 28,040 Total Equity Value
Uses of Funds Less Management EquityCash Proceeds to Seller 25,000 Equity to LBO SponsorsCommon Stock Seller 2,000Transaction Fees 1,040Total Uses 28,040 Sponsor IRR
Multiple of Sponsor's Original InvestmentPurchase Price 27,000
Fees and ExpensesAdvisory 340Legal 250Other Expenses - Accounting, Etc. 250Term Loan 2.0% 200Total 1,040
7
ASSUMPTIONS
Acme ManufacturingAssumptions
Inputs Purchase SummaryName Acme Manufacturing Management Ownership % 16.67%Management Case 2 Financial Sponsor Ownership % 83.33%Transaction Year 2010 Purchase Price Multiple 6.14xSales Growth Rate 10.0% Senior Debt (Senior + Revolver)/EBITDA 2.28x
Conservative Case 5.0% Subordinated Debt/EBITDA 1.36xManagement Case 10.0% Total Leverage 3.65x
Tax Rate 40.0%
Sources of Funds Return AnalysisSpread to Libor Uses Limit
Existing Cash 0 Exit Year 1 2 3 4 5Revolver 8.0% 40 4,000 Trailing EBITDA 4,840 5,324 5,856 6,442 7,086Senior - Term Loan 8.0% 10,000 EBITDA Multiple 6.14x 6.14x 6.14x 6.14x 6.14xSub Debt 12.0% 6,000 Enterprise Value 29,700 32,670 35,937 39,531 43,484PIK 2.0%Management Stock Roll-Over 2,000 Plus: Cash 2,871 5,066 7,605 10,516 13,825Financial Sponsor Equity 10,000 Less: Debt 6,528 6,659 6,792 6,928 7,066Total Sources 28,040 Total Equity Value 26,043 31,078 36,751 43,119 50,243
Uses of Funds Less Management Equity 4,341 5,180 6,125 7,186 8,374Cash Proceeds to Seller 25,000 Equity to LBO Sponsors 21,703 25,898 30,626 35,932 41,869Common Stock Seller 2,000Transaction Fees 1,040Total Uses 28,040 Sponsor IRR 117.0% 60.9% 45.2% 37.7% 33.2%
Multiple of Sponsor's Original Investment 2.2xPurchase Price 27,000
Fees and ExpensesAdvisory 340Legal 250Other Expenses - Accounting, Etc. 250Term Loan 2.0% 200Total 1,040
8
Step 2, Create a transactional balance sheet
TRANSACTIONAL BALANCE SHEET
Acme ManufacturingTransactional Balance Sheet($ in 000's)
Transaction Financing Pro forma2010 Adustments Adjustments Opening
AssetsCurrent Assets
Cash 0Accounts Receivable 0Inventory 0Prepaids and Other 0
Current Assets 0 0
Plant Property & Equipment, Net 0Goodwill and Intangibles, Net 0Other Long Term Assets 0
Total Assets 0 0
Liabilities & Owners EquityCurrent Liabilities
Accounts Payable 0Accrued Expenses 0Other Current Liabilities 0
Current Assets 0 0
Other Long Term Liabilities 0
Revoliving Line of Credit 0Senior Loan 0Subordinated Debt 0
EquityCommon and add'l paid in capital 0Retained earnings 0
Total Liabilities & Owners Equity 0 0Check 0.000 0.000
9
TRANSACTIONAL BALANCE SHEET
Acme ManufacturingTransactional Balance Sheet($ in 000's)
Transaction Financing Pro forma2010 Adustments Adjustments Opening
AssetsCurrent Assets
Cash 2,300 (2,300) 0Accounts Receivable 3,750 3,750Inventory 4,000 4,000Prepaids and Other 1,323 1,323
Current Assets 11,373 9,073
Plant Property & Equipment, Net 4,100 4,100Goodwill and Intangibles, Net 0 0Other Long Term Assets 70 70
Total Assets 15,543 13,243
Liabilities & Owners EquityCurrent Liabilities
Accounts Payable 1,200 1,200Accrued Expenses 1,984 1,984Other Current Liabilities 661 661
Current Assets 3,845 3,845
Other Long Term Liabilities 75 75
Revoliving Line of Credit 653 (653) 40 40Senior Loan 650 (650) 10,000 10,000Subordinated Debt 6,400 (6,400) 6,000 6,000
EquityCommon and add'l paid in capital 1,000 (1,000) 0Retained earnings 2,920 (2,920) 12,000 12,000
Total Liabilities & Owners Equity 15,543 31,960Check 0.000 18,717.500
10
GOODWILL
Acme ManufacturingGoodwill($ in 000's)
Pro forma Calculation of GoodwillOpening Book value of assets
Assets less: liabilities assumedCurrent Assets 0
Cash Fair market value adjustment to assets 0
Accounts Receivable Adjusted net assets 0InventoryPrepaids and Other Cost of purchase
Current Assets 0New Goodwill 0
Plant Property & Equipment, NetOther Long Term Assets
LiabilitiesCurrent Liabilities
Accounts PayableAccrued ExpensesOther Current Liabilities
Current Assets 0
Other Long Term Liabilities
Calculation: Tax Purposes Goodwill Amort.Term 5 Fees 1,040 (% of Fees Tax Deductible? ) 60% 624Term 15 New Goodwill 0 (% of Goodwill Tax Deductible? ) 0% 0Term 15 Existing Goodwill 0 (% of Goodwill Tax Deductible? ) 0% 0
Balance 1 2 3 4 5Transaction FeesGoodwillAcq. Goodwill
FeesNew GoodwillExisting GoodwillTotal Amort. 0 0 0 0 0Cummulative Amort. 0 0 0 0 0
11
GOODWILL
Acme ManufacturingGoodwill($ in 000's)
Pro forma Calculation of GoodwillOpening 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 9,323Inventory 4,000Prepaids and Other 1,323 Cost of purchase 27,000
Current Assets 9,073New Goodwill 17,678
Plant Property & Equipment, Net 4,100Other Long Term Assets 70
LiabilitiesCurrent Liabilities
Accounts Payable 1,200Accrued Expenses 1,984Other Current Liabilities 661
Current Assets 3,845
Other Long Term Liabilities 75
12
GOODWILL
Balance 1 2 3 4 5Transaction Fees 499 374GoodwillAcq. Goodwill
Fees 125 125New GoodwillExisting GoodwillTotal Amort. 125 125 0 0 0Cummulative Amort. 125 250 250 250 250
Balance 1 2 3 4 5Transaction Fees 499 374 250 125 0GoodwillAcq. Goodwill
Fees 125 125 125 125 125New GoodwillExisting GoodwillTotal Amort. 125 125 125 125 125Cummulative Amort. 125 250 374 499 624
Balance 1 2 3 4 5Transaction Fees 499 374 250 125 0Goodwill 0 0 0 0 0Acq. Goodwill 0 0 0 0 0
Fees 125 125 125 125 125New Goodwill 0 0 0 0 0Existing Goodwill 0 0 0 0 0Total Amort. 125 125 125 125 125Cummulative Amort. 125 250 374 499 624
Begins
Copy Formulas
Down
Copy Formulas
Right
13
GOODWILL
Acme ManufacturingGoodwill($ in 000's)
Pro forma Calculation of GoodwillOpening 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 9,323Inventory 4,000Prepaids and Other 1,323 Cost of purchase 27,000
Current Assets 9,073New Goodwill 17,678
Plant Property & Equipment, Net 4,100Other Long Term Assets 70
LiabilitiesCurrent Liabilities
Accounts Payable 1,200Accrued Expenses 1,984Other 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% 624Term 15 New Goodwill 17,678 (% of Goodwill Tax Deductible? ) 0% 0Term 15 Existing Goodwill 0 (% of Goodwill Tax Deductible? ) 0% 0
Balance 1 2 3 4 5Transaction Fees 499 374 250 125 0Goodwill 0 0 0 0 0Acq. Goodwill 0 0 0 0 0
Fees 125 125 125 125 125New Goodwill 0 0 0 0 0Existing Goodwill 0 0 0 0 0Total Amort. 125 125 125 125 125Cummulative Amort. 125 250 374 499 624
14
TRANSACTIONAL BALANCE SHEET
Acme ManufacturingTransactional Balance Sheet($ in 000's)
Transaction Financing Pro forma2010 Adustments Adjustments Opening
AssetsCurrent Assets
Cash 2,300 (2,300) 0Accounts Receivable 3,750 3,750Inventory 4,000 4,000Prepaids and Other 1,323 1,323
Current Assets 11,373 9,073
Plant Property & Equipment, Net 4,100 4,100Goodwill and Intangibles, Net 0 18,718 18,718Other Long Term Assets 70 70
Total Assets 15,543 31,960
Liabilities & Owners EquityCurrent Liabilities
Accounts Payable 1,200 1,200Accrued Expenses 1,984 1,984Other Current Liabilities 661 661
Current Assets 3,845 3,845
Other Long Term Liabilities 75 75
Revoliving Line of Credit 653 (653) 40 40Senior Loan 650 (650) 10,000 10,000Subordinated Debt 6,400 (6,400) 6,000 6,000
EquityCommon and add'l paid in capital 1,000 (1,000) 0Retained earnings 2,920 (2,920) 12,000 12,000
Total Liabilities & Owners Equity 15,543 31,960Check 0.000 0.000
15
Relink the debt page for new debt
DEBT
2010 2011 2012 2013 2014 2015
Cash Flow Available for Financing Activities 951 1,318 1,730 2,188 2,740Plus: Beginning Cash Balance 0 50 50 50 50Less: Minimum Cash Balance (50) (50) (50) (50) (50)
Cash Available for Debt Repayment 901 1,318 1,730 2,188 2,740
Senior Term ABeg. Balance 10,000 8,324 6,336 4,039 1,398Scheduled Amortization (1,000) (1,000) (1,000) (1,000) (1,000)Additional Amortization (676) (989) (1,297) (1,641) (398)Ending Balance 10,000 8,324 6,336 4,039 1,398 0
Interest Rate 8.0%Interest Expense 733 586 415 217 56
Subordinated DebtBeg. Balance 6,000 6,120 6,242 6,367 6,495PIK Interest 120 122 125 127 130Amortization 0 0 0 0 0Ending Balance 6,000 6,120 6,242 6,367 6,495 6,624
PIK Interest Rate 2.0%Cash Interest Rate 12.0%Interest Expense 727 742 757 772 787
RevolverCash Available to Sweep to Revolver (775) (670) (568) (453) 1,342
Beg. Balance 40 815 1,485 2,053 2,506Draw/(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
16
DEBT
Credit StatisticsTotal Senior Debt 9,139 7,821 6,091 3,904 1,164Total Debt 15,259 14,063 12,459 10,398 7,788Total Senior Cash Interest 798 705 579 418 149Total Cash Interest 1,525 1,447 1,336 1,190 936EBITDA 4,840 5,324 5,856 6,442 7,086
Senior Debt / EBITDA 1.89x 1.47x 1.04x 0.61x 0.16xTotal Debt / EBITDA 3.15x 2.64x 2.13x 1.61x 1.10xEBITDA / Senior Cash Interest 6.06x 7.55x 10.11x 15.41x 47.55xEBITDA / Total Cash Interest 3.17x 3.68x 4.38x 5.42x 7.57xFixed Charge Ratio = (EBITDA-Capex-Taxes)/(Cash Interest+Scheduled Amortization)
EBITDA 4,840 5,324 5,856 6,442 7,086Capex 1,000 1,000 1,000 1,000 1,000Taxes 962 1,107 1,284 1,497 1,776Cash Interest 1,525 1,447 1,336 1,190 936Scheduled Amortization 1,000 1,000 1,000 1,000 1,000
Fixed Charge Ratio 1.14x 1.31x 1.53x 1.80x 2.23x
17
CASH FLOW STATEMENT
Net Change in CashBeginning Cash Balance 2,300 2,350 50 50 50Change in Cash Flow 50 (2,300) 0 0 1,551Ending Cash Balance 2,300 2,350 50 50 50 1,601
Net Change in CashBeginning Cash Balance 0 50 50 50 50Change in Cash Flow 50 0 0 0 0Ending Cash Balance 0 50 50 50 50 50
18
BALANCE SHEET
Acme ManufacturingBalance Sheet($ in 000's)
Pro forma2008 2009 2010 Opening 2011 2012 2013 2014 2015
AssetsCurrent Assets
Cash 500 750 2,300 0 50 50 50 50 50Accounts Receivable 3,000 3,300 3,750 3,750 4,125 4,538 4,991 5,490 6,039Inventory 2,000 3,000 4,000 4,000 4,400 4,840 5,324 5,856 6,442Prepaids and Other 1,000 1,150 1,323 1,323 1,455 1,600 1,760 1,936 2,130
Current Assets 6,500 8,200 11,373 9,073 10,030 11,028 12,125 13,333 14,661
Plant Property & Equipment, Net 4,550 5,250 4,100 4,100 4,314 4,329 4,143 3,757 3,171Goodwill and Intangibles, Net 200 100 0 18,718 18,593 18,468 18,343 18,218 18,094Other Long Term Assets 50 60 70 70 77 85 93 102 113
Total Assets 11,300 13,610 15,543 31,960 33,014 33,909 34,705 35,411 36,039
Liabilities & Owners EquityCurrent Liabilities
Accounts Payable 1,000 1,100 1,200 1,200 1,320 1,452 1,597 1,757 1,933Accrued Expenses 1,500 1,725 1,984 1,984 2,182 2,400 2,640 2,904 3,195Other Current Liabilities 500 575 661 661 727 800 880 968 1,065
Current Assets 3,000 3,400 3,845 3,845 4,230 4,652 5,118 5,629 6,192
Other Long Term Liabilities 65 70 75 75 83 91 100 110 121
Revoliving Line of Credit 0 525 653 40 815 1,485 2,053 2,506 1,164Senior Loan 1,135 935 650 10,000 8,324 6,336 4,039 1,398 0Subordinated Debt 6,000 6,200 6,400 6,000 6,120 6,242 6,367 6,495 6,624
EquityCommon and add'l paid in capital 1,000 1,000 1,000 0 0 0 0 0 0Retained earnings 100 1,480 2,920 12,000 13,442 15,102 17,028 19,274 21,937
Total Liabilities & Owners Equity 11,300 13,610 15,543 31,960 33,014 33,909 34,705 35,411 36,039Check 0.000 0.000 0.000 0.000 0.000 0.000 0.000 (0.000) 0.000
Working Capital RatiosWorking Capital 3,000 4,050 5,228 5,228 5,750 6,325 6,958 7,654 8,419Change in WC 1,050 1,178 523 575 633 696 765AR Days 43.80 46.33 48.88 48.88 48.88 48.88 48.88 48.88 48.88Inventory Turnover 7.50 5.20 4.20 4.20 4.20 4.20 4.20 4.20 4.20Other current assets as % of Sales 4.0% 4.4% 4.7% 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% 0.3%A/P Days Outstanding 24.33 25.74 26.07 26.07 26.07 26.07 26.07 26.07 26.07Accrued Expenses as a % of COGS 10.0% 11.1% 11.8% 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% 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% 0.4%
19
DISCOUNTED CASH FLOW
Acme ManufacturingDCF($ in 000's)
1 2 3 4 52011 2012 2013 2014 2015 Terminal
EBIT
less: Taxes (40.0%) 40.00%
Not Operating Profit After Tax (NOPAT) 0 0 0 0 0 0
add: Depreciation
add: Amortization
less: Capital Expenditures
less: Working Capital Requirements
Cash Flow 0 0 0 0 0 0
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%
Subordinated Debt 25.00%
Common Stock 25.00%
100.00%
Ind. Avg. WACC = 0.00%
Present Value of Cash Flows
Present Value Factor
Present Value
Total Present Value of Interim Cash Flows
Present Value Factor for Terminal Value
Terminal Value Calculated using:
Terminal EBIDA Multiple: Gordon Growth Model:
Terminal EBITDA Terminal Growth Rate
Terminal EBITDA Multiple Terminal Net Debt Free Cash Flow
Residual Enterprise Value Residual TIC Value
Discounted Terminal Enterprise Value Discounted Terminal Enterprise Value
Enterprise Value Conclusion :
Based on Terminal EBITDA Multiple 0
Based on Gordon Growth Model 0
20
DISCOUNTED CASH FLOW
Acme ManufacturingDCF($ in 000's)
1 2 3 4 52011 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
21
DISCOUNTED CASH FLOW
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%
22
DISCOUNTED CASH FLOW
Acme ManufacturingDCF($ in 000's)
1 2 3 4 52011 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 Flow2,712
Residual Enterprise Value 43,484 Residual TIC Value 32,293
Discounted Terminal Enterprise Value 25,063 Discounted Terminal Enterprise Value18,613
Enterprise Value Conclusion :
Based on Terminal EBITDA Multiple 33,622
Based on Gordon Growth Model 27,172