On December 31, 2019, Silver Lane Partners, a private equity frm, acquired the operations of Baezmore Telecom (BT), a company with last twelve months (LTM) EBITDA of $882.7 million at an enterprise value amounting to 8.0 times LTM EBITDA. At the date of the acquisition, BT had noncontrolling interests with a market value of $30.0 million, debt of $50.0m, equity investments valued at $8.0m, and cash of $20.0m.
As part of the deal, all the noncontrolling interests were acquired (at their market value) and all existing debt was refinanced. To fund the buyout, Silver Lane was able to secure $250 million in debt financing at a 10.0% rate of interest (to be paid annually at each year end on the debt outstanding). Transaction fees due in cash at the purchase date were $3.0 million, while financing fees due in cash at purchase date totaled $1.0 million.
None of BT's cash balances were used to fund the buyout.
Silver Lane made the following assumptions about BT's future growth:
EBITDA will grow by 8.0% annually over the next 5 years.
BT would be sold on December 31, 2024 at an 8.0x LTM EBITDA multiple.
BT will be able to reduce its debt down $5.0m each year from $250.0 million to $225.0 million bt December 31, 2024.
Cash will decline $3.0m each year to $5.0 million by December 31, 2024.
Net working capital (accounts receivable + inventory - accounty payable) was $2.0m on the acquisition date and will grow by $1.0m each year through 2024.
The value of equity investments will grow by 10% annually.
PLEASE ANSWER THE FOLLOWING 3 QUESTIONS ON A MICROSOFT EXCEL SHEET.
Question 1
What is the value of BT’s existing equity implied by Silver Lane’s purchase multiple?
Â
Question 2
Calculate the equity investments made by Silver Lane.
Â
Question 3
Calculate the equity value at exit
Â
Â
Â