Question

Given LBO Parameters and Assumptions

• Abraaj Capital purchases Hepsiburada (HB) for 7.0x Forward 12 months (FTM) EBITDA at the end of Year 0.
• The debt-to-equity ratio for the LBO acquisition will be 70:30.
• Assume the weighted average interest rate on debt to be 12%.
• HB expects to reach $900 million in sales revenue with an EBITDA margin of 10% in Year 1.
• Revenue is expected to increase by 20% year-over-year (y-o-y).
• EBITDA margins are expected to remain flat during the term of the investment.
• Capital expenditures are expected to equal 5% of sales each year.
• Operating working capital is expected to increase by $10 million each year.
• Depreciation is expected to equal $40 million each year.
• Assume a constant tax rate of 20%.
• Abraaj exits the target investment after Year 5 at the same EBITDA multiple used at entry (5.0x FTM EBITDA).
• Assume all debt pay-down occurs at the moment of sale at the end of Year 5 (this eliminates the iterative/circular dependency between debt pay-down/cash balances and interest expense in a computer-based LBO model).

1. What is the purchase price of HB?
   1. USD 450 million
   2. USD 550 million
   3. USD 630 million
   4. USD 700 million
   5. None of the above

We need to solve without of Excel.

Answer 1

RR Check Year 5 FTM Revenue EBITDA margin FTM EBITDA Purchase value (7x FTM EBITDA) Depreciation rate- Debt to equity Interest rate Revenues in year 1 EBITDA margin capex (% of sales) Investment Year 1 ear 2 Year 3 Year 189.0 189.0 189.0 189.0 189.0 17.9 130.5 307.8 494.4 10 17.9 11.9 11.9 11.9 ax rate on net income: 17.9 17.9 Copital budgeting 867.7 WORKING CAPTAL Initial Investment in Work. Cap working capital as % of Rev. Salvageable fraction at end Debt- Deal and Returns Summary Enterprise Debt (D) 5-Year Value (EV-D) Return 10 12 EBITDA Multiple Value (EV) 441.0 441.0 441.0 441.0 118.9 305.5 3.00x 4.00x 5.00x 6.00 7.00x 559.9 746.5 933.1 1,119.7 GROWTH RATES 678.7 20.00% 20.00% 20.00% 20 1,3064 4410865.446.3 PROFIT & LOSS STATEMENT 900.0 1,555.2 1,080.0 20% 972.0 108.0 10% 40.0 68.0 1,296.0 1,866.2 Revenue growth (%) Operating cost 166.4 129.6 10% 810.0 90.0 10% 40.0 50.0 52.9 1,679.6 186.6 10% 1,399.7 EBITDA margin (%) Depreciation 10% 40.0 115.5 EBIT 146.6 Interest expenses 18.7 29.3 FREE CASH FLOW Depreciation 40.0 40.0 10.0 45.0 40.0 Less: Change in W Less: Capex 10.0 -64.8 93.3 Amortization 441.0 0.0 441.0 441.0 441.0 441.0 441.0 441.0 441 52.9 Exit value (7x of Yr5 EBITDA)- Debt ofs ,306.47 SY-EBITDA 865.4

Answer highlighted in yellow. Exit multiple is same as entry multiple as per case description. However, as case mentions exit multiple as 5x FTM EBITDA. Therefore, equity value under both scenario has been shown.