LBO Modeling
Private Equity Case
Study: TPG’s $3 Billion
Buyout of J. Crew
Prerequisites…
• Understand LBO concept
• Completed the 3-statement
projection model homework
• Understand debt basics
(interest rates, principal
repayment)
Why an LBO Model?
• Always in the News
• PE Interviews – Required!
• Learn/Review Accounting
• Need to Learn to “Speed Build”
The Case Study (1 / 3)
Private Equity Interview Case Study – Part 2
In this case study, you’ll analyze the recent $3.0 billion buyout of J. Crew by TPG and Leonard Green.
Announced on November 23, 2010, the deal represented a rebound in the LBO and debt markets and
was one of the larger deals since the start of the credit crunch in mid-2007.
J. Crew is a specialty retailer with over 300 retail stores in the US. It sells higher-end clothing and
accessories via its stores and directly via mail order and its website.
In part 2 of this case study, you’ll modify the 3-statement model you created earlier to turn it into an
LBO model instead. Please use the following assumptions for this part of the case study:
The Case Study (2 / 3)
Part 2 – Purchase Price & Debt Assumptions
Assume an offer price of $43.50 per share, just as in the real transaction, and that all diluted shares are
acquired. Assume that TPG and Leonard Green use $1.85 billion worth of debt, just as in the real
transaction, with the following tranches, interest rates, and principal repayments:




Revolver: $250 million (L + 250 interest)
Term Loan A: $500 million (L + 350 interest, 10% annual repayment)
Term Loan B: $500 million (L + 500 interest, 5% annual repayment)
Subordinated Notes: $600 million (11% fixed interest, no annual repayment)
Assume that the Revolver is undrawn initially. For LIBOR, please use the LIBOR curve included with the
attached Excel file.
The minimum cash balance should be $50 million and you should assume a 5-year buyout period with an
exit in FY 2016.
The Case Study (3 / 3)
Discussion Questions
Once you’ve completed the LBO model, be prepared to discuss the following questions:
1. Based on the returns, would you invest in J. Crew along with TPG and Leonard Green? Why or
why not?
2. How did you determine the EBITDA exit multiple to use? How do you know that it’s accurate?
3. Would the transaction work with more or less debt used, or with a higher EBITDA exit multiple?
4. How else could you change the assumptions to get a higher return?
5. What additional information would you need to make an investment decision?
You have 3 hours to complete the LBO model and then 30 minutes to present your findings to the
committee.
Game Plan:
• Assumptions
• Modify Income Statement
• Adjust BS / CFS
• Debt Schedules & Linking
• Returns & Case Answers
Assumptions:
Transaction Assumptions
Company Name:
J.Crew Group, Inc.
Current Share Price:
$ 37.65
Offer Premium:
15.6%
Offer Price Per Share:
$ 43.50
% Debt Used:
61%
Purchase Price Calculations:
Common Shares:
Diluted Shares:
Transaction Close Date:
Equity Purchase Price:
Transaction Enterprise Value:
EBITDA Purchase Multiple:
Debt Used:
1/31/2011
$ 3,015
2,607
7.5 x
1,850
Diluted Shares:
63.79
69.30
Diluted Equity Value:
$ 3,015
Less: Cash & Investments
(432)
Plus: Debt
24
Plus: Noncontrolling Interests
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:
$ 2,607
Name
Number
Tranche A
0.761
Tranche B
1.974
Tranche C
3.027
Tranche D
2.215
RSUs
0.598
Total
Exercise
Price
$ 3.53
7.62
14.29
32.73
Dilution
0.699
1.628
2.033
0.549
0.598
5.507
More Assumptions:
Base EBITDA Exit Multiple:
Advisory Fee %:
Financing Fee %:
Legal & Misc. Fees:
LIBOR Units:
Minimum Cash Balance:
7.0 x
0.30%
0.60%
$5
10,000
$
50
The minimum cash balance should be $50 million and you should assume a 5-year buyout period with an
exit in FY 2016.
Debt Assumptions:
Debt Assumptions
%:
Total Debt Used:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:




$ Amount:
$ 1,850
14%
250
27%
500
27%
500
32%
600
Interest Rates:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
L + 250
L + 350
L + 500
11.00%
Principal Repayment %:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Revolver: $250 million (L + 250 interest)
Term Loan A: $500 million (L + 350 interest, 10% annual repayment)
Term Loan B: $500 million (L + 500 interest, 5% annual repayment)
Subordinated Notes: $600 million (11% fixed interest, no annual repayment)
N/A
10.0%
5.0%
0.0%
Sources & Uses
Sources & Uses
Sources:
Term Loan A:
Term Loan B:
Subordinated Note:
Investor Equity:
Total Sources:
Uses:
$
500
500
600
1,464
$ 3,064
Equity Value of Company:
Repay Existing Debt:
Advisory Fees:
Capitalized Financing Fees:
Legal & Misc. Fees:
Total Uses:
$
$
3,015
24
9
11
5
3,064
Pop Quiz
Q: How would Sources & Uses
Change if the PE firm assumed J.
Crew’s existing debt instead?
A) We would remove the “Repay Existing Debt” item.
B) We would add a “Debt Assumed” item under both
Sources and Uses.
C) We would add a “Debt Assumed” item only under
Sources.
Final Assumption: Goodwill
Goodwill Creation & Balance Sheet Adjustments
Goodwill Calculation:
Equity Purchase Price:
Less: Seller Book Value:
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:
Less: Write-Up of PP&E:
Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:
Financing Fees Amortization Period:
$ 3,015
(562)
$ 2,453
$
(21)
(491)
206
$ 2,147
5
Fixed Asset Write-Up:
PP&E Write-Up %:
PP&E Write-Up Amount:
Depreciation Period (Years):
10.0%
21
8
Intangible Asset Write-Up:
Purchase Price to Allocate:
% Allocated to Intangibles:
Intangibles Write-Up Amount:
Amortization Period (Years):
2,453
20.0%
491
5
New Deferred Tax Liability:
$
206
Existing Income Statement…
Income Statement
2009
Revenue:
Cost of Goods Sold:
Gross Profit:
$ 1,335 $ 1,428 $
873
555
SG&A Expense:
Depreciation & Amortization:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:
Net Income:
EBITDA:
Historical
2010
$
1,578 $
882
696
2011
1,775 $
957
818
412
46
97
430
55
211
470
63
285
(6)
91
37
(5)
206
83
123
266 $
54
143 $
2012
2013
Projected
2014
2015
2016
1,988 $ 2,207 $ 2,428 $ 2,646 $ 2,858
1,133
1,257
1,383
1,508
1,628
855
949
1,044
1,138
1,230
547
68
608
75
668
83
729
90
787
98
240
266
293
320
345
(2)
283
114
240
97
266
107
293
118
320
129
345
139
169
348 $
143
308 $
159
342 $
175
376 $
191
410 $
206
443
LBO Effects…
Financing Fees Amortization Period:
5
Income Statement, Post-LBO
Income Statement
2012
Revenue:
Cost of Goods Sold:
Gross Profit:
$ 1,335 $
Historical
Projected
2013
2014
2015
2016
1,988
1,133
855
$ 2,207
1,257
949
$ 2,428
1,383
1,044
$ 2,646
1,508
1,138
$ 2,858
1,628
1,230
SG&A Expense:
Depreciation & Amortization:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Operating Income:
547
68
3
98
2
137
608
75
3
98
2
164
668
83
3
98
2
190
729
90
3
98
2
217
787
98
3
98
2
242
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:
137
55
164
66
190
77
217
87
242
97
Net Income:
EBITDA:
82
308
98
342
114
376
129
410
145
443
$
$
$
$
$
Pop Quiz
Q: What’s the flaw with the way we
just modified the income
statement?
A) Depreciation and Amortization are non-cash items so
they shouldn’t be there at all.
B) We need better estimates for the periods for the
PP&E write-up and intangibles.
C) We can’t just divide the amount by the period,
because the period may be less than 5 years.
Balance Sheet: Assets
Balance Sheet
2009
Assets:
Current Assets:
Cash & Cash-Equivalents:
Merchandise Inventories:
Prepaid Expenses & Other:
Total Current Assets:
$
Long-Term Assets:
Net PP&E:
Goodwill:
Intangible Assets:
Capitalized Financing Fees:
Other Assets:
Total Long-Term Assets:
Total Assets:
$
Historical
2010
Transaction Adjustm
2011
146 $
187
58
392
298 $
190
31
519
432
206
49
687
202
21
222
195
25
219
205
20
225
614 $
739 $
912
BS Adjustments: Assets
Balance Sheet
Goodwill Creation & Balance Sheet Adjustments
2011
Assets:
Current Assets:
Cash & Cash-Equivalents:
Merchandise Inventories:
Prepaid Expenses & Other:
Total Current Assets:
$
Long-Term Assets:
Net PP&E:
Goodwill:
Intangible Assets:
Capitalized Financing Fees:
Other Assets:
Total Long-Term Assets:
Total Assets:
432 $
206
49
687
205
20
225
$
912
Transaction Adjustments
2011
Credit
Debit
-
21
2,147
491
11
-
$
-
$
432
206
49
687
226
2,147
491
11
20
2,894
-
$
3,581
Projected
Goodwill Calculation:
Equity Purchase Price:
Less: Seller Book Value:
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:
Less: Write-Up of PP&E:
Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:
$ 3,015
(562)
$ 2,453
$
(21)
(491)
206
$ 2,147
Pop Quiz
Q: Wait a minute, why do Capitalized
Financing Fees count as an asset?
A) Because they reduce the amount of taxes the
company will pay in the future.
B) Because they correspond to another item (debt) that
remains on the balance sheet for years.
C) Both of the above.
Balance Sheet: L & E
Balance Sheet
2009
Liabilities & Shareholders' Equity:
Current Liabilities:
Revolver:
Accounts Payable:
Other Current Liabilities:
Total Current Liabilities:
$
Long-Term Liabilities:
Existing Long-Term Debt:
Term Loan A:
Term Loan B:
Subordinated Note:
Long-Term Deferred Tax Liability:
Other Long-Term Liabilities:
Total Long-Term Liabilities:
Total Liabilities:
Shareholders' Equity:
Common Stock & APIC:
Treasury Stock:
Sponsor Common Equity:
Retained Earnings:
Total Shareholders' Equity:
Total Liabilities & SE:
$
Historical
2010
Transaction Adjustments
2011
- $
120
88
208
- $
128
108
235
135
108
243
100
81
181
49
78
127
24
83
107
389 $
363 $
350
586
(4)
614
(4)
631
(4)
$
(357)
225 $
(234)
376 $
(65)
562
$
614 $
739 $
912
BS Adjustments: L&E
Balance Sheet
2011
Liabilities & Shareholders' Equity:
Current Liabilities:
Revolver:
$
- $
Accounts Payable:
135
Other Current Liabilities:
108
Total Current Liabilities:
243
Long-Term Liabilities:
Existing Long-Term Debt:
Term Loan A:
Term Loan B:
Subordinated Note:
Long-Term Deferred Tax Liability:
Other Long-Term Liabilities:
Total Long-Term Liabilities:
24
83
107
Total Liabilities:
350
$
Shareholders' Equity:
Common Stock & APIC:
Treasury Stock:
Sponsor Common Equity:
Retained Earnings:
Total Shareholders' Equity:
$
(65)
562
Total Liabilities & SE:
$
912
631
(4)
Transaction Adjustments
Debit
Credit
2011
-
24
-
631
(4)
(50)
$
-
$
500
500
600
206
-
135
108
243
500
500
600
206
83
1,889
$
2,131
$
1,464
(14)
1,450
$
3,581
1,464
-
Goodwill Creation & Balance Sheet Adjustments
Projected
Goodwill Calculation:
Equity Purchase Price:
$ 3,015
Less: Seller Book Value:
(562)
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:
$ 2,453
Less: Write-Up of PP&E:
Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:
$
(21)
(491)
206
$ 2,147
Sources & Uses
Sources:
Term Loan A:
Term Loan B:
Subordinated Note:
Investor Equity:
Total Sources:
Advisory Fees:
Capitalized Financing Fees:
Legal & Misc. Fees:
$
500
500
600
1,464
$ 3,064
9
11
5
Pop Quiz
Q: Why do we wipe out all of J.
Crew’s shareholders’ equity? Don’t
they still have retained earnings?
A) Because the PE firm gets everything, including the
retained earnings, in the transaction.
B) Because the PE firm purchases everything and
replaces it with their own equity.
C) It’s just an accounting convention and doesn’t
actually affect the model.
Projected Balance Sheet: Assets
Balance Sheet
2012
Assets:
Current Assets:
Cash & Cash-Equivalents:
Merchandise Inventories:
Prepaid Expenses & Other:
Total Current Assets:
Long-Term Assets:
Net PP&E:
Goodwill:
Intangible Assets:
Capitalized Financing Fees:
Other Assets:
Total Long-Term Assets:
Total Assets:
$
2013
Projected
2014
2015
2016
244
58
302
270
64
335
297
71
368
324
77
401
350
83
433
219
2,147
235
2,147
253
2,147
271
2,147
292
2,147
20
2,386
20
2,402
20
2,419
20
2,438
20
2,459
2,688 $ 2,737 $ 2,788 $ 2,840 $ 2,892
Projected Balance Sheet: L&E
Liabilities & Shareholders' Equity:
Current Liabilities:
Revolver:
Accounts Payable:
Other Current Liabilities:
Total Current Liabilities:
Long-Term Liabilities:
Existing Long-Term Debt:
Term Loan A:
Term Loan B:
Subordinated Note:
Long-Term Deferred Tax Liability:
Other Long-Term Liabilities:
Total Long-Term Liabilities:
Total Liabilities:
$
160
126
286
177
140
318
195
154
349
213
168
381
230
182
411
-
-
-
-
-
206
83
289
206
83
289
206
83
289
206
83
289
206
83
289
575 $
606 $
638 $
669 $
700
Shareholders' Equity:
Common Stock & APIC:
Treasury Stock:
Sponsor Common Equity:
Retained Earnings:
Total Shareholders' Equity:
$
1,464
1,464
1,464
1,464
1,464
68
166
279
409
554
1,532 $ 1,630 $ 1,744 $ 1,873 $ 2,018
Total Liabilities & SE:
$
2,107 $ 2,236 $ 2,382 $ 2,542 $ 2,718
Projected CFS:
Cash Flow Statement
2012
Net Income:
$
Depreciation & Amortization:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Changes in Operating Assets & Liabilities:
Merchandise Inventories:
Prepaid Expenses & Other:
Other Assets:
Accounts Payable & Other:
Other Liabilities:
Cash Flow from Operations:
(38)
(9)
25
19
250
Capital Expenditures:
Cash Flow from Investing:
Cash Flow Available for Debt Repayment:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Total Cash Flow Used to Repay Debt:
Net Change in Cash & Cash Equivalents:
Beginning Cash Balance:
Ending Cash Balance:
$
Projected
2014
2015
2013
82 $
68
3
98
2
98 $
75
3
98
2
2016
114 $
83
3
98
2
129 $
90
3
98
2
145
98
3
98
2
(27)
(6)
18
14
274
(27)
(6)
18
14
298
(27)
(6)
18
14
321
(26)
(6)
17
13
344
(82)
(82)
(91)
(91)
(100)
(100)
(109)
(109)
(118)
(118)
168
183
198
212
226
-
-
-
-
-
168
183
198
212
226
432
600 $
600
783 $
783
980
1,192
980 $ 1,192 $ 1,418
Debt Schedules – Interest Rates
Debt & Interest Schedules
2012
LIBOR Curve:
Interest Rate Assumptions:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
LIBOR +
2.50%
3.50%
5.00%
2013
Projected
2014
2015
2016
0.30%
0.30%
0.50%
1.00%
2.00%
2.80%
3.80%
5.30%
11.00%
2.80%
3.80%
5.30%
11.00%
3.00%
4.00%
5.50%
11.00%
3.50%
4.50%
6.00%
11.00%
4.50%
5.50%
7.00%
11.00%
Fixed
Interest
11.00%
Interest Rates:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Principal Repa
L + 250
L + 350
L + 500
11.00%
Debt Schedules – Repayment
Sources of Funds:
Beginning Cash Balance:
Less: Minimum Cash Balance:
Plus: Cash Flow Available for Debt Repay:
Subtotal Before Revolver:
Revolver Borrowing Required:
Total Sources of Funds:
432
(50)
168
550
550
600
(50)
183
733
733
783
(50)
198
930
930
980
(50)
212
1,142
1,142
1,192
(50)
226
1,368
1,368
Debt Schedules – Repayment
Debt Assumptions
%:
Total Debt Used:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
$ Amount:
$ 1,850
14%
250
27%
500
27%
500
32%
600
Principal
Interest
Repayment
Rates:%:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
N/A
10.0%
5.0%
0.0%
Explaining the MIN Formula:
• =MIN(Prior Year Debt, Beginning
Balance * Yearly Amortization)
• Prior Year Debt = 400, Beginning Balance
= 500, Yearly Amortization = 10%...
• Repay 50, since 50 < 400
• Prior Year Debt = 20, Beginning Balance =
500, Yearly Amortization = 10%...
• Repay 20, since 20 < 50
Debt Schedules – Repayment
Optional Debt Repayment:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Optional Repayment Total:
450
25
475
450
208
658
450
405
855
Cash Generated on Balance Sheet:
Total Uses of Funds:
550 $
733 $
142
368
930 $ 1,142 $ 1,368
$
450
475
925
450
475
925
Explaining the MAX/MIN Formula:
• =MAX(MIN(Prior Year Revolver, Cash Flow
Available – Debt Repaid So Far), 0)
• Revolver = 100, Cash Flow Available = 100,
Debt Repaid So Far = 50…
• Repay 50, since 50 < 100
• Revolver = 20, Cash Flow Available = 100, Debt
Repaid So Far = 50…
• Repay 20, since 20 < 50
• Revolver = 100, Cash Flow Available = 100,
Debt Repaid So Far = 120
• Repay 0, since 0 > -20
Debt Schedules – Repayment
Final Version of Debt Schedules:
Pop Quiz
Q: Why do we need the MAX function
in the optional debt repayment
formula?
A) Because the Subtotal Before Revolver – All Payments
So Far might be negative.
B) Because the Prior Year Term Loan – Mandatory
Repayment part might be negative.
C) We should always include MAX(Formula, 0) around
repayment formulas to error-check the model.
Debt Schedules – Interest
Interest Income / (Expense) Calculations:
Revolver:
$
Term Loan A:
Term Loan B:
Subordinated Note:
Cash:
Net Interest Income / (Expense):
- $
(19)
(27)
(66)
2
(110)
- $
(19)
(27)
(66)
2
(109)
- $
(20)
(28)
(66)
4
(109)
- $
(23)
(30)
(66)
11
(108)
(28)
(35)
(66)
26
(102)
Linking – Debt Payments
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Total Cash Flow Used to Repay Debt:
(500)
(50)
(550)
(183)
(183)
(198)
(198)
(70)
(70)
-
Linking – Net Change in Cash
Balance Sheet
2012
Assets:
Current Assets:
Cash & Cash-Equivalents:
Merchandise Inventories:
Prepaid Expenses & Other:
Total Current Assets:
$
50 $
244
58
352
2013
Projected
2014
2015
50 $
270
64
385
50 $
297
71
418
192 $
324
77
593
2016
418
350
83
851
Linking – Long-Term Assets
Long-Term Assets:
Net PP&E:
Goodwill:
Intangible Assets:
Capitalized Financing Fees:
Other Assets:
Total Long-Term Assets:
Total Assets:
237
2,147
392
9
20
2,806
$
251
2,147
294
7
20
2,718
265
2,147
196
4
20
2,633
282
2,147
98
2
20
2,549
300
2,147
20
2,467
3,157 $ 3,103 $ 3,051 $ 3,142 $ 3,318
Linking – Liabilities
Liabilities & Shareholders' Equity:
Current Liabilities:
Revolver:
Accounts Payable:
Other Current Liabilities:
Total Current Liabilities:
$
Long-Term Liabilities:
Existing Long-Term Debt:
Term Loan A:
Term Loan B:
Subordinated Note:
Long-Term Deferred Tax Liability:
Other Long-Term Liabilities:
Total Long-Term Liabilities:
Total Liabilities:
Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Total Cash Flow Used to Repay Debt:
- $
160
126
286
450
600
206
83
1,339
$
- $
177
140
318
267
600
206
83
1,156
- $
195
154
349
- $
213
168
381
230
182
411
70
600
206
83
958
600
206
83
889
600
206
83
889
1,625 $ 1,473 $ 1,308 $ 1,269 $ 1,300
(500)
(50)
(550)
(183)
(183)
(198)
(198)
(70)
(70)
-
Linking – Income Statement
Income Statement
2012
Revenue:
Cost of Goods Sold:
Gross Profit:
$ 1,335 $
SG&A Expense:
Depreciation & Amortization:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Operating Income:
Interest Income / (Expense):
Pre-Tax Income:
Income Tax Provision:
Net Income:
EBITDA:
$
2013
Projected
2014
2015
2016
1,988 $ 2,207 $ 2,428 $ 2,646 $ 2,858
1,133
1,257
1,383
1,508
1,628
855
949
1,044
1,138
1,230
547
68
3
98
2
137
608
75
3
98
2
164
668
83
3
98
2
190
729
90
3
98
2
217
787
98
3
98
2
242
(101)
36
14
(89)
74
30
(83)
108
43
(74)
142
57
(66)
176
71
44
342 $
64
376 $
85
410 $
105
443
21
308 $
Make Sure Circularity Works…
Calculating Returns
Investor Returns
2011
EBITDA:
EBITDA Multiple:
Enterprise Value:
Investor Equity:
$
348
7.5 x
2,607
(1,464)
2012
2013
2014
2015
2016
$
-
-
-
-
443
7.0 x
3,099
2,669
Calculating Returns
Investor Returns
2011
EBITDA:
EBITDA Multiple:
Enterprise Value:
Investor Equity:
IRR:
$
348
7.5 x
2,607
(1,464)
12.8%
2012
2013
2014
2015
2016
$
-
-
-
-
443
7.0 x
3,099
2,669
Back to the Case Study…
Discussion Questions
Once you’ve completed the LBO model, be prepared to discuss the following questions:
1. Based on the returns, would you invest in J. Crew along with TPG and Leonard Green? Why or
why not?
2. How did you determine the EBITDA exit multiple to use? How do you know that it’s accurate?
3. Would the transaction work with more or less debt used, or with a higher EBITDA exit multiple?
4. How else could you change the assumptions to get a higher return?
5. What additional information would you need to make an investment decision?
You have 3 hours to complete the LBO model and then 30 minutes to present your findings to the
committee.
Sensitivity Tables
Purchase Premium / Per-Share
Price
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple
$
$
$
$
$
$
$
$
$
$
54.59
52.71
50.83
48.95
47.06
45.18
43.30
41.42
39.53
37.65
12.8%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
3.0 x
(24.9%)
(21.8%)
(19.0%)
(16.4%)
(13.9%)
(11.4%)
(9.0%)
(6.7%)
(4.4%)
(2.1%)
4.0 x
(13.7%)
(11.6%)
(9.5%)
(7.5%)
(5.5%)
(3.5%)
(1.5%)
0.5%
2.5%
4.6%
5.0 x
(6.4%)
(4.6%)
(2.9%)
(1.1%)
0.6%
2.4%
4.2%
6.1%
8.0%
9.9%
Exit Multiple:
6.0 x
7.0 x
8.0 x
(0.8%)
3.7%
7.5%
0.7%
5.2%
8.9%
2.3%
6.6%
10.4%
3.9%
8.2%
11.8%
5.6%
9.7%
13.3%
7.2%
11.3%
14.9%
8.9%
12.9%
16.5%
10.7%
14.6%
18.1%
12.5%
16.4%
19.8%
14.3%
18.2%
21.6%
9.0 x
10.9%
12.3%
13.6%
15.1%
16.5%
18.0%
19.6%
21.2%
22.9%
24.6%
10.0 x
13.9%
15.2%
16.6%
18.0%
19.4%
20.9%
22.4%
24.0%
25.7%
27.4%
11.0 x
16.6%
17.9%
19.2%
20.6%
22.0%
23.5%
25.0%
26.6%
28.2%
29.9%
70.0%
3.5%
5.3%
7.0%
8.8%
10.6%
12.4%
14.2%
16.1%
18.1%
20.1%
75.0%
3.4%
5.4%
7.3%
9.2%
11.2%
13.2%
15.2%
17.2%
19.3%
21.4%
80.0%
3.3%
5.5%
7.7%
9.8%
12.0%
14.1%
16.3%
18.5%
20.8%
23.1%
Purchase Premium / Per-Share
Price
Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:
$
$
$
$
$
$
$
$
$
$
54.59
52.71
50.83
48.95
47.06
45.18
43.30
41.42
39.53
37.65
12.8%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
40.0%
3.9%
4.9%
6.0%
7.1%
8.3%
9.5%
10.7%
12.1%
13.4%
14.9%
45.0%
3.8%
5.0%
6.1%
7.3%
8.6%
9.8%
11.2%
12.6%
14.0%
15.5%
50.0%
3.8%
5.0%
6.3%
7.6%
8.9%
10.2%
11.7%
13.1%
14.6%
16.2%
% Debt Used:
55.0%
60.0%
65.0%
3.8%
3.7%
3.6%
5.1%
5.1%
5.2%
6.4%
6.6%
6.8%
7.8%
8.1%
8.4%
9.2%
9.6%
10.0%
10.7%
11.2%
11.7%
12.2%
12.8%
13.4%
13.7%
14.4%
15.2%
15.3%
16.1%
17.0%
17.0%
17.9%
18.9%
Case Study Answers
• Investment: No – only way to get solid
returns is multiple expansion or lower price
• Exit Multiple: Select range based on
purchase multiple
• Tweaks: Debt barely changes anything;
need multiple expansion or higher growth
to win
• Additional Information: Expansion plans,
customer/store data, competition, cost
cutting possibilities, retail indicators
What Next?
• Go Practice Yourself
• Download the Model and Files
• Learn More Advanced Topics
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