FIN 286 Fall 2019

CASE #2
DUPONT CORPORATION: SALE OF DUPONT PERFORMANCE COATINGS (DPC)

1. Assess DPC’s fit within DuPont. What are its prospects going forward as a division within
DuPont versus its potential value to an outside party?

2. How attractive is DPC as an acquisition from a strategic buyer’s or PE firm’s perspective?

What are the potential risks to such a deal?

3. Working from case Exhibit 9 estimate the total DPC value if a PE fund can obtain, in a 100%
equity case:
a. 5% revenue growth per annum (versus 4% growth) in each of the next five years and
improve the operating margin to 12% (versus 10%).

b. Assume part a. and that the division can be sold at 7.5× forward EBITDA in 2016.

4. Assume that initial debt financing equal to 6.0x forward EBITDA can be obtained and that
all cash available to pay the LBO debt each year (i.e., residual cash flow). If a P/E sponsor
has a target return of 20% on its funds (equity contribution), what is the maximum enterprise
value it can offer for DPC assuming:
a. Business as projected (no revenue or margin improvements) and sale at 7.0x forward
EBITDA in 2016?

b. Business with revenue and margin improvements (Part 3.a above) and multiple expansion
to 7.5x forward EBITDA in 2016 (Part 3.b above)?

c. What are some of the advantages and risks of using leverage to finance the investment?

5. What minimum price should Ellen Kullman be willing to sell DPC for (this is a valuation,
not a negotiation question)?

Note: You do not need to do an Adjusted Present Value (APV) analysis for this case. Also,
you report should be in a 2-page format with font no less than 12’ and line spacing of no
less than 1.5. You should have all the financial analysis to support your summary in the
back of your report as appendix. Note that you will be graded based on how neat and clear
those appendix pages are laid-out.