private equity transaction
TRANSCRIPT
A Case Study on
Private Equity Transaction
Dept. of Accounting & Info. Systems
Jahangirnagar University
Savar, Dhaka, Bangladesh
Private Equity Firm & Target Firm
o Private Equity Firm: Apollo Global Management(AGM)
o Target Company: LyondellBasell Industries
Target Company-LyondellBasell
o Lyondell and Basell merged in 2007.
o LyondellBasell was one of the top 5 chemical production companies.
o Their Product Line: home furnishing, paints, food packaging, automotive
components, coatings and oil refinery.
o It faced with Bankruptcy problem in 2009.
o Apollo (PE firm) acquired LyondelBasell in 2009.
Private Equity Firm-
Apollo Global Management
o Established in 1990.
o Currently having $192 billion assets under their management.
o Management team consists of 986 personnel along with 376 investment
professionals working in 15 offices around the world.
o Some successful buyouts are- CMI, Nalco Holdings & United Agri, Intelsat, Berry
Plastics and many others.
Why we took this case?
o Apollo made one of the most successful and profitable private equity
transaction with LyondellBasell.
o The firm had turned a $2 billion investment in the target company into $12
billion with a net internal rate of return of 30%.
Why Apollo acquired LyondellBasell?
o Leverageable Balance Sheet
o Business Strength
o Strong R&D program
o Superior Technology
o Industry position
Why Apollo acquired LyondellBasell? (contd…)
Financial Viewpoint: Vertical Analysis
Particulars 2007 2008
Revenue 100 100
COGS 88.76 96.20
Gross Margin 11.24 3.80
SG&A 4.32 2.36
R&D 1.34 0.38
Other 0.12 12.75
Operating Margin 5.46 -11.69
Net Interest Income & Other 0.04 -4.45
EBT Margin 5.49 -16.14
Restructuring Strategies
• Cost Cutting:
o Reduced fixed cost
o Employee reduction etc.
• Optimizing Financial structure:
o Good quality of asset
o Issued new equity
Restructuring Strategies (contd…)
• Debt reduction:
o Reduced debt from $23 billion to $6 billion.
o Reduced debt to equity ratio to 0.67 (Industry avg was 1.1)
• Corporate Governance:
o Nomination of supervisory board
o Focus on safety reliability and cost
o Introduction of SAP system
Restructuring Strategies (contd…)
4.7
1
9.3
7.2
11.8
9
GROSS MARGIN % OPERATING MARGIN %
Profitability Ratios
2009 2010 2011
Restructuring Strategies (contd…)
0.8
0.3
7
2.9
1.982.2
8
0.9
7
CURRENT RATIO QUICK RATIO
LIQUIDITY RATIOS
2009 2010 2011
Restructuring Strategies (contd…)
-5.08
0.55
3.23
0.13
3.78
2
FREE CASH FLOW/SALES % FREE CASH FLOW/NET INCOME %
Cash Flow Ratios
2009 2010 2011
Restructuring Strategies (contd…)
11.2
3
1.95
12.5
2
3.6
8
14.4
5
2
RECEIVABLE TURNOVER FIXED ASSET TURNOVER
EFFICIENCY RATIOS
2009 2010 2011
Exit Strategy
o Apollo exited from their investment in LyondellBasell in 2011.
o Their Exit Strategy was Initial Public Offering (IPO).
o They made a net profit of $9.6 billion.
Post Exit Scenario
o Investment grade rating point in 2014 was BBB+.
o Interest Coverage Ratio 6.8
o Free Cash Flow Interest Coverage Ratio 5.3
o Debt to Equity Ratio 1.4
Post Exit Scenario (contd…)
Particulars 2012 2013 2014 2015 2016
Revenue (USD mil) 45352 44062 45608 32735 29183
Gross Margin % 12.7 13.9 14.6 21.5 20.5
Operating Income (USD mil) 4676 5102 5736 6122 5060
Operating Margin % 10.3 11.6 12.6 18.7 17.3
Net Income (USD mil) 2848 3857 4174 4476 3836
Earnings Per Share 4.92 6.75 7.99 9.59 9.13
Dividends 1.45 2 2.70 3.04 3.33
Pay Out Ratio % 29.2 31 30.7 31.5 36
Shares (Mil) 578 571 521 466 420
Book Value Per Share 19.47 21.64 20.21 16.65 15.05
Operating Cash Flow (USD mil) 4787 4835 6048 5842 5606
Free Cash Flow (USD mil) 3727 3274 4549 4402 3363
Free Cash Flow Per share 6.46 5.19 7.94 11.13 6.73
Working Capital (USD mil) 7190 9089 6208 5440 5059
Post Exit Scenario (contd…)
Particulars 2012 2013 2014 2015 2016
Current Ratio 2.41 2.65 2.14 2.25 2.11
Quick Ratio 1.30 1.62 1.12 1.04 1.11
Debt/Equity 0.39 0.46 0.81 1.17 1.39
Liquidity Ratios:
Post Exit Scenario (contd…)
Profitability Ratios:
Particulars 2012 2013 2014 2015 2016
Net Margin % 6.28 8.75 9.13 13.67 13.14
Asset Turnover (AVG) 1.93 1.71 1.77 1.39 1.26
Return on Asset % 12.10 14.97 16.14 19.03 16.61
Financial Leverage (AVG) 2.17 2.19 2.92 3.47 3.87
Return on Equity % 26.21 32.66 40.03 60.23 60.90
Return on Invested Capital % 21.78 24.13 26.06 31.17 27.43
Thank You