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Lbo Valuation Process
Lbo Valuation Process
Linköping
January 8, 2009
Stefan Glevén
Private Equity
Private Equity – A catalyst for growth?
I. Introduction to EQT
Hong Kong
I. Introduction to EQT
Investment
Committee
Auditors /
Lawyers
Accountants
Financial
Sponsor
Industry
Specialists M&A Bankers
Leverage
Finance
Bankers
I. Introduction to EQT
Main assumptions:
y Projections for income statement and operational balance sheet
– Dependent on market, market position, management, profitability, cost structure etc
y Debt structure
– Dependent on cash flow generation and banks willingness to finance the investment
y Exit multiple
– Dependent on company and industry profile
y Required return for the investment
– Dependent on EQT
Net Debt 60 53 45 35 23
Step 4. Define Required IRR
Required IRR 30%
Step 2. Define Debt
Structure
Year 0
Debt 60
EV = 102 Equity 42
Enterprise Value 102
EV/EBITDA 8.5x
LBO:
95 110
20-25% IRR; 6x-7x EBITDA Exit
DCF:
105 130
7.5%-8.0% WACC; 6x-7x EBITDA TV
Trading Comparables:
95 105
7x-8x 2009E EBITDA
Trading Comparables:
100 110
11x-12x 2009E EBIT
Precedent Transactions:
105 115
8x-9x LTM EBITDA
I. Introduction to EQT
Common Equity/
Common Shareholder Loan
Equity/Shareholder Loan
Common
PIK Loan PIK Note
Equity/Shareholder Loan
Unsecured Note Unsecured Note
Mezzanine Mezzanine
PIK
2nd Lien 2nd Lien
Loan Note
Senior Debt
Senior Debt
Senior Debt
( € in billions) ( € in billions)
€160B €140B 320
240
€120B €100B
200
€100B €80B
160
€80B €60B
120
€60B
€40B
80
€40B
€20B 40
€20B
€0B 0
1998 2000 2002 2004 2006 2008
€0B
1Q 2Q 3Q 4Q Deal Count*
2003 2004 2005 2006 2007 YTD 2008
Source: Standard & Poor’s LCD
40%
3.0x
20% 2.0x
0% 1.0x
2003 2004 2005 2006 2007 Jan-Sep 08
0.0x
Sr Only Sr + 2nd Lien Sr + Mezz Sr + 2nd Lien + Mezz
2007 3Q08
I. Introduction to EQT
• Operational Improvements
Margin • Product mix enhancement
Expansion
• Using the target company’s cash flows to increase the equity component of
enterprise value by repaying debt
Debt pay down
EQT
Industrialists
Industrial
Industrial Acceleration
Acceleration
Management
Team
Network
• Equity Markets
• Debt Markets
Market
• Competing Offerings
• Many
Buyers • Willing
• Able
• Return vs requirements
EQT • Need for exits (fund raising etc)
• Portfolio Management issues
80% 42%
Revenue growth 13%
12%
60%
40% 36%
Margin
improvements
20%
Strategic re-
19%
positioning
0% 3% Debt pay-down
Employee growth Sales growth EBITDA growth
(1) Includes organic and acquisitive growth. Analysis based on Carl Zeiss having acquired Sola and Dragoco Haarmann &
Reimer. If base for these acquisitions is adjusted, EQT portfolio companies recorded an average +10% employee growth, ® 2008 EQT – All Rights Reserved 25
+11.3% sales growth and +18% EBITDA growth Strictly private and Confidential
Agenda
I. Introduction to EQT