THE “OLD WINERY” CASE: FINANCING THROUGH PE

A TOP ITALIAN WINERY

“Old Winery” is an Italian company operating within the winery sector and it’s considered one of the
top Italian winery worldwide. Old Winery is located in the South of Italy and has a very long tradition
to produce white, red and dessert wines. It’s ten years Old Winery has been winning plenty of prizes
and awards around the world for top wines. Old Winery is a family owned company and from ten years
about the 75% of sales is done trough exports in Europe and in US.

During the 2015, the owners of Old Winery decide to look for a PE investor to sustain growth and to
plan in a long run also an acquisition campaign. The motto is: “before growth, growth and growth,
afterwards acquisitions”.

The forecast through four years is based on the following assumptions coming from the business plan
under the supervision of the advisors:

Profit and Losses Statement (euros/000)

2015 2016 2017 2018

Sales 49,860.00 52,756.00 56,698.00 61,721.00

Operating costs 39,379.00 40,910.00 43,782.00 45,714.00

EBITDA 10,481.00 11,846.00 12,916.00 16,007.00

Depreciation - 1,768.00 - 2,305.00 - 2,305.00 - 2,388.00

EBIT 8,713.00 9,541.00 10,611.00 13,619.00

Other incombe - - - -
Interest expenses - 300.00 - 36.00 - 36.00 - 36.00

EBT 8,413.00 9,505.00 10,575.00 13,583.00

Taxes - 1,648.00 - 4,074.00 - 4,378.00 - 5,710.00

NET INCOME 6,765.00 5,431.00 6,197.00 7,873.00

To calculate the cash flow, the approach chosen is the cash flow for the firm. The main info coming
from the balance sheet concerns the following data:

Inputs to calculate the Cash Flow Statement (euros/000)

2015 2016 2017 2018

(+) Depreciation 1,768.00 2,305.00 2,305.00 2,388.00

(-) Increase net working capital - 9,788.00 - 4,500.00 - 500.00 - 500.00

(-) Capex - 3,000.00 - 3,975.00 - 1,322.00 - 500.00

Besides, the net financial position is 10 millions euros and the liabilities are made from 12.5 millions
euros of debt and 8 millions euros of equity; on the asset side, Old Winery has assets for 12 millions
which are old villas and manors nowadays not used for promotions and special events.

The main comparables on the market comes not only from Italy but from all country top wines
producers because the wine market is international. The data are the following:

Beta EV/sales EV/EBITDA D/E

Mondavi (US) 0.73 6.2 26 9.45

Beringer (US) 0.94 5.5 22.9 5.25
Southcorp (AUS) 1.02 8.5 24.9 8.25
Bodegas (SP) 0.89 8.5 26.7 8.35
Campari (ITA) 1.23 6.7 24 7.35
Antinori (ITA) not listed 4.9 26.9 7.85

To evaluate the company for the PE investment, you have to consider that: the risk free rate is 1.25%
(calculated as five years Italian Government bonds); the return on market investment is estimated at a
level of 7.75%; the expected holding period is 4 years; the g growth rate is estimated at a level of 0.25%;
the corporate tax is 35%.