What rates of return do you expect for equity holders and each tranche of senior debt and
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Question:
- What rates of return do you expect for equity holders and each tranche of senior debt and subordinated debt for this investment given the forecasted financials and capital structure?
- Is this rate of return sufficient from Butler Capital's perspective?
- Are the rates of return fair for the risks being taken from the perspective of the markets?
- You should consider the assumptions for margin improvements and growth in Exhibit 18 of the case in answering these questions.
| Autodistribution - Historical Consolidated P/L | |||||
| Thousand of FFr | 1994 | 1995 | 1996 | 1997 | 1998 |
| Turnover (n-1 perimeter) | n.d. | 4,323,000 | 4,498,000 | 4,805,000 | 5,263,000 |
| % / n-1 without acquired n-1 turnover | n.s. | n.s. | -0.60% | 3.80% | 4.90% |
| % / n-1 including acquired n-1 turnover | n.s. | n.s. | 4.00% | 6.80% | 9.50% |
| Turnover of purchased companies | n.d. | 200,243 | 129,372 | 211,576 | 137,532 |
| Total net turnover | 4,228,968 | 4,523,243 | 4,627,372 | 5,016,576 | 5,400,532 |
| % / n-1 | n.s. | 7.00% | 2.30% | 8.40% | 7.70% |
| - | -2,617 | 188 | 424 | - | |
| Raw material and goods purchases | -2,981,168 | -3,166,984 | -3,208,175 | -3,463,077 | -3,699,596 |
| Gross margin | 1,247,800 | 1,353,642 | 1,419,385 | 1,553,923 | 1,700,936 |
| % / n-1 | n.s. | 8.50% | 4.90% | 9.50% | 9.50% |
| Other variable costs | -346,775 | -368,000 | -381,872 | -421,463 | -441,165 |
| Value added | 901,025 | 985,642 | 1,037,513 | 1,132,460 | 1,259,771 |
| % / n-1 | n.s. | 9.40% | 5.30% | 9.20% | 11.20% |
| Personnel and social charges | -633,009 | -662,100 | -713,079 | -787,251 | -833,358 |
| Employee profit sharing | -6,436 | -8,739 | -7,830 | -8,638 | -11,627 |
| Taxes | -47,318 | -55,709 | -56,402 | -64,326 | -69,687 |
| State fundings | - | 941 | 1,912 | 1,675 | - |
| Other products and expenses | 17,301 | 20,772 | -11,262 | 17,730 | 24,710 |
| EBITDA | 231,563 | 280,807 | 250,852 | 291,651 | 369,809 |
| % / n-1 | n.s. | 21.30% | -10.70% | 16.30% | 26.80% |
| Depreciation allowance | -44,404 | -46,130 | -51,196 | -58,784 | -64,889 |
| Risk allowance | -80,055 | -85,625 | -87,384 | -101,153 | -100,286 |
| Resumptions & transfers of ch. | 86,277 | 92,281 | 120,170 | 114,795 | 105,939 |
| EBIT | 193,381 | 241,332 | 232,442 | 246,509 | 310,573 |
| % / n-1 | n.s. | 24.80% | -3.70% | 6.10% | 26.00% |
| Operations in common | 317 | 342 | -19 | -74 | 226 |
| Cash discount on purchases | n.d. | n.d. | 22,000 | 23,810 | 22,500 |
| Other financial income | 33,052 | 38,405 | 8,682 | 6,502 | 8,324 |
| Financial charges | -50,763 | -46,814 | -30,823 | -20,167 | -13,958 |
| Financial depreciation | - | 1,167 | 5,623 | 4,055 | 579 |
| Financial result | -17,394 | -6,900 | 5,463 | 14,126 | 17,671 |
| EBIT after interest | 175,987 | 234,432 | 237,905 | 260,635 | 328,244 |
| % / n-1 | n.s. | 33.20% | 1.50% | 9.60% | 25.90% |
| Extraordinary profits | 21,027 | 27,575 | 41,366 | 15,725 | 27,814 |
| Extraordinary expenses | -34,894 | -27,442 | -35,053 | -21,949 | -19,904 |
| Extraordinary allowance | - | -24,495 | -25,186 | -620 | 520 |
| Extraordinary result | -13,867 | -24,362 | -18,873 | -6,844 | 8,430 |
| Tax penalty | -25000 | ||||
| Income tax | -54,829 | -85,916 | -92,735 | -115,592 | -145,033 |
| Net result before goodwill amort. | 107,291 | 124,154 | 126,297 | 138,199 | 166,641 |
| % / n-1 | n.s. | 15.70% | 1.70% | 9.40% | 20.60% |
| Goodwill amortization | -3,334 | -4,761 | -5,810 | -15,121 | -13,624 |
| Consolidated net result | 103,957 | 119,393 | 120,487 | 123,078 | 153,017 |
| % / n-1 | n.s. | 14.80% | 0.90% | 2.20% | 24.30% |
| Minority interests | 1,122 | 1,116 | -946 | -528 | 4 |
| Group consolidated net result | 102,835 | 118,277 | 121,433 | 123,606 | 153,013 |
| % / n-1 | n.s. | 15.00% | 2.70% | 1.80% | 23.80% |
exhibit 18:
| Butler Capital Partners' Assumptions for AD | ||||||||
| 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |
| Growth | ||||||||
| Growth Organic Sales growth | 2.00% | 3.90% | 3.70% | 3.50% | 3.00% | 2.50% | 2.50% | 2.50% |
| Sales from acquisitions | 378,457 | 582,407 | 676,137 | 762,195 | 778,440 | 871,750 | 701,900 | 706,600 |
| Margins | ||||||||
| Gross profit | 32.20% | 33.20% | 34.20% | 35.20% | 36.00% | 36.30% | 36.50% | 36.60% |
| EBITDA | 7.50% | 7.75% | 7.98% | 8.23% | 8.63% | 8.70% | 8.83% | 8.93% |
| Depreciation | 1.20% | 1.23% | 1.23% | 1.23% | 1.23% | 1.23% | 1.23% | 1.23% |
| Financial income | 3,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 |
| Interest Expense | ||||||||
| CapEx Debt | 1.875% | 1.875% | 1.875% | 1.875% | 1.875% | 1.875% | 1.875% | 1.875% |
| Other debts | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% | 0.75% |
| Goodwill | 16,000 | 20,000 | 25,000 | 29,000 | 34,000 | 40,000 | 45,000 | 50,000 |
| Extraordinary expenses | 5,000 | 8,000 | 9,000 | 10,000 | 11,000 | 12,000 | 13,000 | 14,000 |
| Other Information | ||||||||
| Tax rate | 40.00% | 36.70% | 36.70% | 36.70% | 36.70% | 36.70% | 36.70% | 36.70% |
| Net working capital | 55 days | 55 days | 55 days | 55 days | 55 days | 55 days | 55 days | 55 days |
| CapEx | 60,000 | 68,000 | 77,000 | 88,000 | 99,000 | 110,000 | 121,000 | 132,000 |
| Acquisitions multiple | 0.275x | 0.275x | 0.300x | 0.300x | 0.350x | 0.350x | 0.350x | 0.350x |
| Debt levels | ||||||||
| CapEx debt | 50,000 | 250,000 | 400,000 | 400,000 | 400,000 | 400,000 | 400,000 | 0 |
| Other | 215,000 | 255,000 | 355,000 | 445,000 | 625,000 | 820,000 | 890,000 | 910,000 |
Expert Answer:
Related Book For 
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
Posted Date:
