Question
In: Finance
Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the following...
Banks are financing acquisition projects, i.e. for Venture
Capital funds. An exemplary project shows the following data:
A
VC fund purchased the target company on 1.1.2020 for a price of
€300k at a Price/EBIT-multiple of 7.5x. 40% of the purchase price
is funded by equity of the VC, remaining amount by bank loan at an
interest of 10% p.a., collateralized by the shares of the target
company. The loan will be repaid on 31.12.2023, accrual for loan
repayment is planned pro rata annually. All cash flows related to
the purchase will be pushed down into the target company’s
P&L.
The
target company runs operationally at annual revenues of €150k in
2020, growing each upcoming year at 4%, while operational costs in
2020 are at €-110k at a future growth rate of 2% year-on-year. In
2020, EBIT is €40k. Operational interest is at €-6.0k (and will be
stable for the upcoming years). Tax rate is 30%. There are no other
operational P/L impacts.
The
VC plans to sell the company on 31.12.2025 (= after 6 years) at a
Price/EBIT-multiple of 7.5x which was the same at purchase.
Please complete the financial model of the transaction based on the
xls-table below. In case of lack of data, please take a reasonable
assumption for your subsequent calculation. Please calculate the
planned annual profitability of the VC fund and the overall
internal rate of return. As the financing bank, what is your
recommendation in respect to the transaction and its risks and
benefits?
Transaction data
Purchase price 300€
Equity 120€
Debt capital 180€
Term dept 4 years bullet repayment
Annual debt accrual 45.0€
Interest rate 10.0%
Tax rate 30%
Target company 2020 2021 2022 2023 2024 2025
Revenues 150,0
Cost operational -110,0
EBIT 40,0
Interest operational -6.0
Taxes -10,2
PBT 23,8
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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