Bagus PE is preparing to Buy-out Target Enterprise valued at 7x EBITDA at end 2016. Banks have committed to the financing:

a. Senior Debt at spread of 2%

b. Junior Debt at spread of 4% cash and total PIK of 8%

c. Assume base rate of 4%

d. At least 50% of Senior Debt has to be repaid within 5 years

e. Net Debt/EBITDA cannot exceed 5x at any time

A very experienced senior management team has been recruited. Management is agreeable to co-invest $2.5m for 8% equity stake. Assume transaction fees of 5%

Previous management had been focused on cost cutting and neglected capex. Post acquisition, it is estimated that $8m capex will have to be spent each year over the next 3 years from end 2017 and $5m for another 2 years. Depreciation of new equipment will take place equally over 5 years. The existing Fixed Assets will be depreciated over the next 2 years.

Revenue suffered a dip in 2016. The new management is confident of turning the business around and project 8 % growth for 1 year post acquisition and 10% thereafter. They also plan to renegotiate supplier and customer contracts and reduce Net Working Capital to 10% of revenue. Gross Margin and EBITDA Margin are expected to hold steady.

Work out a Financing Model for Bagus PE utilising Senior and Junior Debt and aiming to exceed IRR of 25% by year 5. Assume an Entry Multiple of 7 and Exit Multiple of 8. Show your working in the Worksheet "Working". Fill in a number or formula into each of the Green cells. Show ALL workings. DO NOT change any other cells in the worksheet. Can Target IRR be reached in Year 5 if there was no increase in exit multiple?

Attachment:- Assignment File.rar