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 $7,400,000 per year. The companys projection is that it would grow 7% every year over the next five years. You would fund your purchase 50% debt and the remaining with equity. As a seasoned private equity investor, you would pay an EBITDA multiple of 8.5 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 will used EBITDA margin of 10% for your calculations. 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 $2,600,000. You have an exit strategy of five years and would sell the company after five years at the same EBITDA multiple as above (8.5). Assume that interest rate is 5%, the yearly capital expenditure is $1,300,000 and the tax rate is 30%.

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Question

Show your operating projections over the next five years and the profit projection in year 5 if you acquire the firm using leverage buyout. If possible, briefly explain and discuss your numbers.