LBO: Pls answer the following questions given the data and select an answer choice from the given options.

On December 31, 2016, Silver Lane Partners, a private equity firm, 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 BTs cash balances were used to fund the buyout.

Q1- What is the value of BTs existing equity implied by Silver Lanes purchase multiple?

• 7,031.60
• 6,783.60
• 6,953.60
• 7,009.60
• 6,981.60

Q2- For this question only, assume the purchase of Existing Equity is $6,500 million.

Calculate the equity investment made by Silver Lane.

Hint: First calculate all the Uses of Funds in the transaction, then solve for the Sources of Funds.

• 6,284.00
• 6,304.00
• 6,314.00
• 6,334.00
• 6,584.00

Q3- In addition, Silver Lane made the following assumptions about BTs future growth:

• EBITDA will grow by 8.0% annually over the next 5 years.
• BT would be sold on December 31, 2021 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 by December 31, 2021.
• Cash will decline $3.0m each year to $5.0 million by December 31, 2021.
• The value of equity investments will grow by 10% annually.

Calculate the equity value at exit.

• 10,343.70
• 10,132.90
• 10,168.70
• 10,088.70
• 10,118.70

Q4- Assuming Silver Lane Partners invested $5.0 billion in Equity at a $9.5 billion Enterprise Value in the deal, and exited with a $9.3 billion Equity valuation at a $12.4 billion Enterprise Value, what was Silver Lanes Annual Returns?

You may assume a 5 year holding period and no dividends or additional Equity contributions during the period.

• 5.5%
• 13.2%
• 13.7%
• 19.9%
• 86.0%

Q5- Assuming the debt holders not only received the 10% annual interest payments but also Options worth $50 million at Exit, what are the annual returns of the debt holders?

You may assume interest payments are made at the end of every year, and a 5 year holding period for the debt holders.

Hint: Use the IRR function in Excel.

• 10.0%
• 11.2%
• 13.1%
• 13.7%
• 30.0%