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You are interested to acquire the following private equity firm. The private firm operates in Australia and its main business is in biotechnology. The current
You are interested to acquire the following private equity firm. The private firm operates in Australia and its main business is in biotechnology. The current revenue is $9,500,000 per year. Given that it is a growing company, you think that the company's revenue would grow to 8% every year over the next five years. Make a choice on what revenue growth rate you wish to use. You would fund your purchase with 50% debt and the remaining with equity. As a seasoned private equity investor, you would pay an EBITDA multiple of 10.5 for the company. Based on the information provided by the firm, since COVID-19 the EBITDA margin has dropped to 10% in the most recent financial statement. You also believe that by actively managing the company, you would be able to grow the EBITDA margin by 2% for each of the next five years. The initial fees and expenses associated with the acquisition are $2,400,000. You have an exit strategy of five years and would sell the company after five years at the same EBITDA multiple you chose above. Assume that interest rate is 5.5%, the yearly capital expenditure is $1,100,000 and the tax rate is 30%. Assume you decide to invest in the business. In 100150 words, briefly explain the due diligence that you would conduct before finalizing the deal
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