Private Equity Case: Merger Consolidation
Q1-Calculate the cost of capital (k-wacc) for the two acquisition companies combined, as if they are a single company (Column D on Q1 tab) Page 7 of the case has the inputs; supply missing inputs using judgment and what you learned in this course.
Q2-Complete the FCF Valuation and the Market Multiples Valuation. Some data is entered for you; some you must enter.
The yellow-shaded cells guide you. Data is for Ohio and Maryland PT companies combined, as if they are a single company.
Q3-Calculate the debt capacity of the combined PT companies (see Financial Statements tab). Disregard the yellow-shaded panels on the Q3 tab- use only the debt capacity panel. Explain how much additional debt can be borrowed based on your analysis.
Q4-Answers here pull together the analysis you did for Q1, Q2 and Q3.
a. Write a short statement describing the 'business risk' of the physical therapy business.....including pros and cons...from the viewpoint of growth and stability of revenue and EBITDA.
b. The case tells you that the 'buyer's side' valuation uses an EBITDA multiple of 3x and a 'seller's side' valuation uses an EBITDA multiple of 8x. The market multiples analysis in Q2 used 3x. Do a sensitivity analysis using 8x and cite the range of values you get with market multiples compared to the valuation with FCF. For Q4b, only cite the results. You will render your recommendation later, in Q4c.
c. Considering your answers to Q4a and Q4b above, recommend the price that should be offered by ACE to buy the combined PT companies. Use metrics you calculated and those in the case (hard data) as well as other case information (soft data) to justify your recommendation.
d. Given the price you recommended in Q4c and the debt capacity you calculated in Q3, and knowing that the policy of ACE is to borrow 50% of the price they pay, is the debt capacity high enough to provide the money they need? Explain fully.
f. Based on what you learned about LBOs in the LBO Overview and LBO Video, and what you learned about Private Equity in the Surowiecki article, explain why you think Aaron Brown's deal is or is not a leveraged buyout.
g. Considering the structure of this deal and its potential rate of return, explain why you think it is either fair or unfair. From a public policy standpoint, should private equity deals be subject to an 'excess rate of return' tax? Why or why not?
Attachment:- Assignment_Template_Excel_WorkSheet.xlsx