Simple LBO Model - Equity Value and Enterprise Value in a Cash-Free, Debt-Free Deal

($ in Millions)

Assumptions:

EBITDA Purchase Multiple: 8.0 x Year 0 Revenue: $ 250

Purchase Enterprise Value: $ 800 Annual Revenue Growth Rate: 5.0%
Purchase Equity Value: 620 Annual EBITDA Margin: 40.0%

% Debt: 50.0% D&A % Revenue: 3.0%

Debt Used: 400 CapEx % Revenue: 4.5%
Investor Equity Contribution: 400 Change in WC % Change in Revenue: (15.0%)

Minimum Cash Balance: $ 25

Interest Rate: 5.0%
Tax Rate: 25.0%
Income Statement: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Revenue: $ 250 $ 263 $ 276 $ 289 $ 304 $ 319

EBITDA: 100 105 110 116 122 128

(-) Depreciation & Amortization: (8) (8) (9) (9) (10)

(-) Interest: (20) (19) (16) (13) (9)

Pre-Tax Income: 77 83 91 100 109

(-) Taxes: (19) (21) (23) (25) (27)
Net Income: $ 58 $ 62 $ 68 $ 75 $ 82

Cash Flow Projections: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Net Income: $ 58 $ 62 $ 68 $ 75 $ 82

(+) Depreciation & Amortization: 8 8 9 9 10

(+/-) Change in Working Capital: (2) (2) (2) (2) (2)
(-) CapEx: (12) (12) (13) (14) (14)

Beginning Cash: - 25 25 25 25
(+) Free Cash Flow: 52 56 62 68 74
(-) Minimum Cash: (25) (25) (25) (25) (25)
Cash Flow Used for Debt Repayment: 27 56 62 68 74

Pre-Txn: Post-Txn:
Debt Balance: 200 400 373 317 255 186 112
Cash Balance: 20 - 25 25 25 25 25

Equity Value and Enterprise Value: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

EBITDA Purchase/Exit Multiple: 8.0 x 8.0 x 8.5 x 9.0 x 9.5 x 10.0 x

Enterprise Value: 800 840 937 1,042 1,155 1,276

Beginning Equity Value: 400 492 646 812 993

(+) Change in Cash Attrib. to Common Shareholders: 52 56 62 68 74
(+) Change in Core-Business Assets: 40 97 105 113 122
Ending Equity Value: 492 646 812 993 1,189

Returns Attribution Analysis: Exit Calculations:

EBITDA Growth: $ 221 Exit Enterprise Value: $ 1,276
Multiple Expansion: 255 (-) Debt: (112)
Debt Paydown and Cash Generation: 313 (+) Cash: 25
Return to Equity Investors: $ 789 Equity Proceeds: $ 1,189

Money-on-Money (MoM) Multiple: 3.0 x

Internal Rate of Return (IRR): 24.3%