***PLEASE SHOW ALL CALCULATIONS***
Dupont Performance Coatings
Using Exhibit 9, estimate the dollar increase in DPCs value, relative to the stand-alone value, if a PE fund can obtain:
a. 5% revenue growth per year (instead of 4%) in each of the next 5 years and improve the operating margin to be 12% (instead of 10%)
b. assume part a and that the division can be sold at 7.5 X EBITDA in 5 years (for day 2)
c. assume that debt financing equal to 5X forward EBITDA can be obtained. Assume that all cash available is used to pay down debt and after 5 years the firm reverts to an all-equity financed firm. Well do this in class first, then you by yourself. Try it before class, so you have some understanding before we start.
| steps |
| calculate debt based on forward EBITDA (EBITDA one year from today) |
| calculate interest expense |
| calculate EBIT and residual cash flow |
| start the following year making adjustments |
| |
| calculate interest tax sheild |
| APV=unlevered CF + PV interest tax shield |
B D E F G H 1 J K L M N 0 P Q 1 Stand-Alone Valuation (dollars in millions) PPG Industries Actual 2011 2012E 10.9% Metric Projected 2013E Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 (6) 12.0% 7.3 2 3 4 5 6 7 8 9 10 | 11 12 13 DuPont Performance Coatings Metric Closing 2011A 12.5% $104 6.3% 25% $80 Sales Growth %) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 14 2012E 4.0% $115 10.0% 25% $115 15.0% Projected 2014E 4.0% $122 10.0% 25% $132 15.0% 2013E 4.0% $118 10.0% 25% $122 15.0% 2015E 4.0% $125 10.0% 25% $144 15.0% 2016E 4.0% $130 10.0% 25% $150 15.0% cbit/sales nwc/sales 7.0 N/A 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Terminal EBITDA Multiple (8) ? ? Debt/EBITDA 2012 (*) Debt Blended Interest Rate on Debt Unlevered Cost of Equity 3 6.75% 11.2% 2016E 4,452.24 2011A $4,281 $372 $104 $268 445.20 30 31 APV Analysis Closing 2012E $4,452 $560 $115 $445 SO $445 $111) $334 ($26) ($115) $308 Net Sales EBITDA Depreciation and Amortization Pretax Operating Income (EBIT) Interest Expense Earnings before Taxes Taxes Net Income Increase in Net Working Capital Capital Expenditures Residual (Levered) Cash Flow 2013E $4,630 $581 $118 $463 SO $463 $116) $347 ($27) ($122) $317 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ) (529) $144) $327 32 33 34 35 36 $5,208 $651 $130 $S21 $0 $521 ($130) $391 (530) ($150) $341 NI= EBIT - interest expense change NWC- NWC 2012 667.84 =NI+depre-tax-NWC-CAPEX NWC2011 642.15 25.69 37 38 39 40 41 $308 $317 $323 $327 $341 $4,738 $5,079 cbit + depr-tax-NWC - CAPEX ebitda(1+g) Ebitda multiple $308 $317 $323 $327 Unlevered Free Cash Flow Terminal Value Unlevered FCF, including TV Enterprise Value (EV) Interest Tax Shield PV Tax Shield EV with Tax Shield 42 43 $3,970 45 $3,970 B D E F G H 1 J K L M N 0 P Q 1 Stand-Alone Valuation (dollars in millions) PPG Industries Actual 2011 2012E 10.9% Metric Projected 2013E Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 (6) 12.0% 7.3 2 3 4 5 6 7 8 9 10 | 11 12 13 DuPont Performance Coatings Metric Closing 2011A 12.5% $104 6.3% 25% $80 Sales Growth %) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) 14 2012E 4.0% $115 10.0% 25% $115 15.0% Projected 2014E 4.0% $122 10.0% 25% $132 15.0% 2013E 4.0% $118 10.0% 25% $122 15.0% 2015E 4.0% $125 10.0% 25% $144 15.0% 2016E 4.0% $130 10.0% 25% $150 15.0% cbit/sales nwc/sales 7.0 N/A 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Terminal EBITDA Multiple (8) ? ? Debt/EBITDA 2012 (*) Debt Blended Interest Rate on Debt Unlevered Cost of Equity 3 6.75% 11.2% 2016E 4,452.24 2011A $4,281 $372 $104 $268 445.20 30 31 APV Analysis Closing 2012E $4,452 $560 $115 $445 SO $445 $111) $334 ($26) ($115) $308 Net Sales EBITDA Depreciation and Amortization Pretax Operating Income (EBIT) Interest Expense Earnings before Taxes Taxes Net Income Increase in Net Working Capital Capital Expenditures Residual (Levered) Cash Flow 2013E $4,630 $581 $118 $463 SO $463 $116) $347 ($27) ($122) $317 2014E $4,816 $604 $122 $482 $0 $482 ($120) $361 ($28) ($132) $323 2015E $5,008 $626 $125 $501 $0 $501 ($125) $376 ) (529) $144) $327 32 33 34 35 36 $5,208 $651 $130 $S21 $0 $521 ($130) $391 (530) ($150) $341 NI= EBIT - interest expense change NWC- NWC 2012 667.84 =NI+depre-tax-NWC-CAPEX NWC2011 642.15 25.69 37 38 39 40 41 $308 $317 $323 $327 $341 $4,738 $5,079 cbit + depr-tax-NWC - CAPEX ebitda(1+g) Ebitda multiple $308 $317 $323 $327 Unlevered Free Cash Flow Terminal Value Unlevered FCF, including TV Enterprise Value (EV) Interest Tax Shield PV Tax Shield EV with Tax Shield 42 43 $3,970 45 $3,970
