Investment Banking
Valuation, Leveraged Buyouts,
and Mergers & Acquisitions
DCF Analysis - Completed
JOSHUA ROSENBAUM
JOSHUA PEARL
Discounted Cash Flow Analysis
($ in millions, fiscal year ending December 31) Operating Scenario Base
Operating Scenario 1
Mid-Year Convention Y Historical Period CAGR CAGR
2005 2006 2007 ('05 - '07) 2008 2009 2010 2011 2012 2013 ('08 - '13) Sales $780.0 $850.0 $925.0 8.9% $1,000.0 $1,080.0 $1,144.8 $1,190.6 $1,226.3 $1,263.1 4.8% % growth NA 9.0% 8.8% 8.1% 8.0% 6.0% 4.0% 3.0% 3.0% COGS 471.9 512.1 555.0 600.0 648.0 686.9 714.4 735.8 757.9 Gross Profit $308.1 $337.9 $370.0 9.6% $400.0 $432.0 $457.9 $476.2 $490.5 $505.2 4.8% % margin 39.5% 39.8% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% SG&A 198.9 214.6 231.3 250.0 270.0 286.2 297.6 306.6 315.8 EBITDA $109.2 $123.3 $138.8 12.7% $150.0 $162.0 $171.7 $178.6 $183.9 $189.5 4.8% % margin 14.0% 14.5% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
Depreciation & Amortization 15.6 17.0 18.5 20.0 21.6 22.9 23.8 24.5 25.3
EBIT $93.6 $106.3 $120.3 13.3% $130.0 $140.4 $148.8 $154.8 $159.4 $164.2 4.8%
% margin 12.0% 12.5% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%
Taxes 35.6 40.4 45.7 49.4 53.4 56.6 58.8 60.6 62.4
EBIAT $58.0 $65.9 $74.6 13.3% $80.6 $87.0 $92.3 $96.0 $98.8 $101.8 4.8% Plus: Depreciation & Amortization 15.6 17.0 18.5 20.0 21.6 22.9 23.8 24.5 25.3
Less: Capital Expenditures (15.0) (18.0) (18.5) (20.0) (21.6) (22.9) (23.8) (24.5) (25.3) Less: Increase in Net Working Capital (8.0) (6.5) (4.6) (3.6) (3.7) Unlevered Free Cash Flow $79.0 $85.8 $91.4 $95.3 $98.1
WACC 11.0%
Discount Period 0.5 1.5 2.5 3.5 4.5 Discount Factor 0.95 0.86 0.77 0.69 0.63 Present Value of Free Cash Flow $75.0 $73.4 $70.4 $66.1 $61.4
Enterprise Value Implied Perpetuity Growth Rate
Cumulative Present Value of FCF $346.3 Enterprise Value $1,133.3 Terminal Year Free Cash Flow (2013E) $98.1
Less: Total Debt (300.0) WACC 11.0%
Less: Preferred Securities - Terminal Value $1,326.3
Terminal Year EBITDA (2013E) $189.5 Less: Noncontrolling Interest
-Exit Multiple 7.0x Plus: Cash and Cash Equivalents 25.0 Implied Perpetuity Growth Rate 3.0%
Terminal Value $1,326.3
Discount Factor 0.59 Implied Equity Value $858.3 Implied EV/EBITDA
Present Value of Terminal Value $787.1 Enterprise Value $1,133.3
% of Enterprise Value 69.4% Implied Share Price 50.0 LTM 9/30/2008 EBITDA 146.7
Enterprise Value $1,133.3 Implied Share Price $17.17 Implied EV/EBITDA 7.7x
Enterprise Value Implied Perpetuity Growth Rate
Exit Multiple Exit Multiple
1,133.3 6.0x 6.5x 7.0x 7.5x 8.0x 0.0 6.0x 6.5x 7.0x 7.5x 8.0x 10.0% 1,060 1,119 1,177 1,236 1,295 10.0% 0.9% 1.5% 2.1% 2.6% 3.0% 10.5% 1,040 1,098 1,155 1,213 1,270 10.5% 1.3% 2.0% 2.5% 3.0% 3.5% 11.0% 1,021 1,077 $1,133 1,190 1,246 11.0% 1.7% 2.4% 3.0% 3.5% 3.9% 11.5% 1,002 1,057 1,112 1,167 1,222 11.5% 2.2% 2.8% 3.4% 3.9% 4.4% 12.0% 984 1,038 1,091 1,145 1,199 12.0% 2.6% 3.3% 3.9% 4.4% 4.8% Projection Period
Implied Equity Value and Share Price
Terminal Value WA C C WA C C
Sensitivity Analysis
($ in millions)Enterprise Value Implied Equity Value
Exit Multiple Exit Multiple
1,133.3 6.0x 6.5x 7.0x 7.5x 8.0x 858.3 6.0x 6.5x 7.0x 7.5x 8.0x 10.0% 1,060 1,119 1,177 1,236 1,295 10.0% 785 844 902 961 1,020 10.5% 1,040 1,098 1,155 1,213 1,270 10.5% 765 823 880 938 995 11.0% 1,021 1,077 $1,133 1,190 1,246 11.0% 746 802 $858 915 971 11.5% 1,002 1,057 1,112 1,167 1,222 11.5% 727 782 837 892 947 12.0% 984 1,038 1,091 1,145 1,199 12.0% 709 763 816 870 924
Implied Share Price PV of Terminal Value as % of Enterprise Value
Exit Multiple Exit Multiple
17.2 6.0x 6.5x 7.0x 7.5x 8.0x 0.7 6.0x 6.5x 7.0x 7.5x 8.0x 10.0% 15.74 16.88 18.02 19.16 20.30 10.0% 66.6% 68.4% 69.9% 71.4% 72.7% 10.5% 15.36 16.47 17.59 18.70 19.82 10.5% 66.3% 68.1% 69.7% 71.1% 72.4% 11.0% 14.98 16.08 $17.17 18.26 19.35 11.0% 66.1% 67.9% 69.4% 70.9% 72.2% 11.5% 14.62 15.69 16.76 17.82 18.89 11.5% 65.8% 67.6% 69.2% 70.6% 72.0% 12.0% 14.26 15.31 16.35 17.40 18.44 12.0% 65.6% 67.3% 68.9% 70.4% 71.7%
Implied Perpetuity Growth Rate
Exit Multiple Exit Multiple
0.0 6.0x 6.5x 7.0x 7.5x 8.0x 7.7 6.0x 6.5x 7.0x 7.5x 8.0x 10.0% 0.9% 1.5% 2.1% 2.6% 3.0% 10.0% 7.2x 7.6x 8.0x 8.4x 8.8x 10.5% 1.3% 2.0% 2.5% 3.0% 3.5% 10.5% 7.1x 7.5x 7.9x 8.3x 8.7x 11.0% 1.7% 2.4% 3.0% 3.5% 3.9% 11.0% 7.0x 7.3x 7.7x 8.1x 8.5x 11.5% 2.2% 2.8% 3.4% 3.9% 4.4% 11.5% 6.8x 7.2x 7.6x 8.0x 8.3x 12.0% 2.6% 3.3% 3.9% 4.4% 4.8% 12.0% 6.7x 7.1x 7.4x 7.8x 8.2x WA C C WA C C WA C C WA C C
Implied Enterprise Value / LTM EBITDA
WA C C WA C C
ValueCo Corporation
Working Capital Projections
($ in millions)Historical Period
2005 2006 2007 2008 2009 2010 2011 2012 2013
Sales $780.0 $850.0 $925.0 $1,000.0 $1,080.0 $1,144.8 $1,190.6 $1,226.3 $1,263.1 Cost of Goods Sold 471.9 512.1 555.0 600.0 648.0 686.9 714.4 735.8 757.9
Current Assets
Accounts Receivable 123.2 141.1 152.6 165.0 178.2 188.9 196.4 202.3 208.4 Inventories 94.6 104.0 115.6 125.0 135.0 143.1 148.8 153.3 157.9 Prepaid Expenses and Other 7.1 8.5 9.3 10.0 10.8 11.4 11.9 12.3 12.6
Total Current Assets $224.9 $253.6 $277.5 $300.0 $324.0 $343.4 $357.2 $367.9 $378.9
Current Liabilities
Accounts Payable 65.2 66.0 69.4 75.0 81.0 85.9 89.3 92.0 94.7 Accrued Liabilities 69.9 83.2 92.5 100.0 108.0 114.5 119.1 122.6 126.3 Other Current Liabilities 15.6 20.4 23.1 25.0 27.0 28.6 29.8 30.7 31.6
Total Current Liabilities $150.7 $169.6 $185.0 $200.0 $216.0 $229.0 $238.1 $245.3 $252.6 Net Working Capital $74.2 $84.0 $92.5 $100.0 $108.0 $114.5 $119.1 $122.6 $126.3
% sales 9.5% 9.9% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
(Increase) / Decrease in NWC ($9.8) ($8.5) ($7.5) ($8.0) ($6.5) ($4.6) ($3.6) ($3.7)
Assumptions
Days Sales Outstanding 57.7 60.6 60.2 60.2 60.2 60.2 60.2 60.2 60.2 Days Inventory Held 73.2 74.1 76.0 76.0 76.0 76.0 76.0 76.0 76.0 Prepaids and Other CA (% of sales) 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Days Payable Outstanding 50.4 47.0 45.6 45.6 45.6 45.6 45.6 45.6 45.6 Accrued Liabilities (% of sales) 9.0% 9.8% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Other Current Liabilities (% of sales) 2.0% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Weighted Average Cost of Capital Analysis
($ in millions)
Capital Structure Predicted Market Market Debt/ Marginal Unlevered
Debt-to-Total Capitalization 30.0% Company Levered Beta(4)
Value of Debt Value of Equity Equity Tax Rate Beta
Equity-to-Total Capitalization 70.0% Adler Industries 1.11 $575.0 $2,600.0 22.1% 38.0% 0.98 Lanzarone International 1.08 515.0 1,750.0 29.4% 38.0% 0.91 Lajoux Global 1.35 715.0 1,050.0 68.1% 38.0% 0.95 Cost of Debt Momper Corp. 1.25 550.0 1,000.0 55.0% 38.0% 0.93 Cost of Debt 6.0% McMenamin & Co. 1.19 250.0 630.0 39.7% 38.0% 0.96
Tax Rate 38.0%
After-tax Cost of Debt 3.7% Mean 1.20 42.9% 0.95 Median 1.19 39.7% 0.95
Cost of Equity
Risk-free Rate(1) 4.0% Mean Target Target
Market Risk Premium(2) 7.1% Unlevered Debt/ Marginal Relevered
Levered Beta 1.20 Beta Equity Tax Rate Beta
Size Premium(3) 1.65% Relevered Beta 0.95 42.9% 38.0% 1.20 Cost of Equity 14.1% WACC 11.0% 0.1 5.0% 5.5% 6.0% 6.5% 7.0% 10.0% 11.9% 11.9% 11.9% 11.9% 12.0% 20.0% 11.3% 11.4% 11.5% 11.5% 11.6% 30.0% 10.8% 10.9% 11.0% 11.1% 11.2% 40.0% 10.3% 10.4% 10.6% 10.7% 10.8% 50.0% 9.8% 10.0% 10.1% 10.3% 10.4%
(1) Interpolated yield on 20-year U.S. Treasury (2) Obtained from Ibbotson SBBI Valuation Yearbook
(3) Low-Cap Decile size premium based on market capitalization, per Ibbotson (4) Sourced from Barra
Pre-tax Cost of Debt
D e bt -t o-Tot a l C a pi ta li z a ti on
WACC Calculation Comparable Companies Unlevered Beta
ValueCo Relevered Beta
Projection Period
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Income Statement Assumptions
Sales (% growth) 8.0% 6.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Base 1 8.0% 6.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Management 2 10.0% 8.0% 6.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Upside 3 12.0% 10.0% 8.0% 6.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Downside 1 4 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Downside 2 5 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Cost of Goods Sold (% sales) 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% Base 1 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% Management 2 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% Upside 3 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% Downside 1 4 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% 61.0% Downside 2 5 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% 62.0% SG&A (% sales) 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Base 1 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Management 2 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Upside 3 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% Downside 1 4 26.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Downside 2 5 27.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% Depreciation & Amortization (% sales) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Base 1 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Management 2 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Upside 3 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Downside 1 4 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Downside 2 5 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Cash Flow Statement Assumptions
Capital Expenditures (% of sales) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Base 1 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Management 2 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Upside 3 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Downside 1 4 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Downside 2 5 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Projection Period
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Current Assets
Days Sales Outstanding (DSO) 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 Base 1 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 Management 2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 60.2 Upside 3 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 Downside 1 4 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 59.0 Downside 2 5 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 57.7 Days Inventory Held (DIH) 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 Base 1 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 Management 2 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 Upside 3 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 76.0 Downside 1 4 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 Downside 2 5 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0 82.0 Prepaid and Other Current Assets (% of sales) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Base 1 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Management 2 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Upside 3 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Downside 1 4 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Downside 2 5 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Current Liabilities
Days Payable Outstanding (DPO) 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 Base 1 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 Management 2 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 45.6 Upside 3 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0 47.0 Downside 1 4 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 42.5 Downside 2 5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 Accrued Liabilities (% of sales) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Base 1 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Management 2 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Upside 3 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Downside 1 4 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Downside 2 5 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Other Current Liabilities (% of sales) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Base 1 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Management 2 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Upside 3 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Downside 1 4 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Downside 2 5 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
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Library of Congress Cataloging-in-Publication Data:
ISBN-13 978-0-470-44220-3
Printed in the United States of America 10 9 8 7 6 5 4 3 2 1