While most of our upcoming cases focus on valuation and financial structuring, the Snapple case also pays close attention to the dynamics of a company behind the numbers (but we still do numbers).

1. Thomas H. Lee Company (THL Co) acquired Snapple for approximately $140 million (Total Enterprise Value, TEV) in mid-1992. Based on this, and based on the other facts provided in the case, determine approximately what return (i.e., IRR AND multiple on investment) the Snapple investment might have generated for THL Co. In doing this analysis, you should consider:

a. What capital structure is appropriate for this company as an LBO (refer back to the Tuck Note on LBOs, especially Table 2, and adjust as needed)? Is this a typical company for an LBO? Would recent growth, risk, the business model, or other factors lead you to adjust leverage (percent of debt) in the capital structure?

b. What proceeds would be raised in the 1993 IPO, and what would they be used for? If you know the uses, does this inform how much money would be raised in the IPO? Given growth and the current margin and profitability, and the business model, what would the company tell new investors the money would be used for immediately? Keep in mind the company is profitable currently while spending on sales growth and marketing.

c. What dilution might be generated by the IPO? (e.g., what happens if you replace debt with new equity in a house?) What dilution would management incentive options, and financing sources (e.g., total all-in cost of sub/mezz debt) create?

d. Since the transaction occurs in the middle of the year, how do you account for this in terms of TEV/EBITDA valuation multiples? Using the case exhibits, you should be able to evaluate this purchase price at the time of the deal relative to LTM EBITDA (i.e., mid-1992).

Tips:

Be clear and concise in your presentation and add useful notes in your spreadsheet. Make it obvious for the reader to see what you are doing.

Especially in #1.a: Analyze, be thoughtful

In the debt table remember that the senior debt and the mezzanine debt are separate.