You are required to submit a highly abridged "Investment Paper" recommending a buyout of  Crocs(pretend that Crocs is a privately owned) AS IF YOU WERE AN EXECUTIVE IN A PRIVATE EQUITY FIRM.
For the avoidance of doubt this means that you are show the paper for people who know all about
Private Equity and therefore want to read your conclusions - NOT A PAPER EXPLAINING WHAT
Your paper will not cover all the items required for an actual Investment Paper (or reach the levels ofdetail needed), but it will provide you with an opportunity to demonstrate key learnings from themodule, namely:
▪ How buyouts work;
▪ How a commercial view of the investment impacts on valuation, risk and transaction structures;
▪ How management is incentivised and how returns flow to fund investors.
We will use the tutorials to ensure that you are clear on the technical aspects of a transaction (e.g.financial, structural, valuation/returns) and blend these with the core commercial reason for making the investment. You will only need to focus on specific elements of the investment paper as shown
below:
▪ Introduction/Executive Summary
▪ The Commercial Opportunity
▪ Market Context
▪ Risks
▪ Valuation and Investment Returns (using a very basic financial model which we will discuss in detail)
▪ Exit Options.
The paper needs original thought. A high level of perception as to the fundamental investment opportunity will drive a higher grade. Excess words that do not add to the reader's understanding ofyour recommendation will have a negative impact - but, of course, your narrative will still need to have a natural logical flow.
Early in the module, you will be offered some choices as to the illustrative investment candidates using real publicly quoted businesses.
YOU MUST ASSUME THAT THE BUSINESS YOUR WRITE ABOUT IS
NOT A PUBLIC COMPANY FOR THE PURPOSES OF THE ASSESSMENT BUT INSTEAD A PRIVATE ONE
WHERE THE EXISTING FAMILY SHAREHOLDER WISHES TO SELL TO THE INCUMBENT MANAGEMENT TEAM.
References to the share price performance of the company, market value, dividend yield are therefore completely irrelevant. Remember also that in a buyout the company is bought debt free - and then the new owner decides what the capital structure will be going forward.
In creating the financial model for your chosen company, you will need to propose an entry (and exit) valuation as well as suggest a leverage multiple and then allocate enough equity to management to result in a good result for them and also a good result for the PE firm.
Please ensure that you copy and paste the simple buyout returns model we provide you with into your assessment so I can see what you have assumed.
NOTE THAT WE DO NOT FOCUS ON FINANCIAL MODELLING IN THE MODULE SO DO NOT CREATE ANY OTHER MODEL FOR THE ASSESSMENT.

 You should ignore the market valuation. It will offer you a useful sense of what the current valuation might be but your assessment can assume an
initial purchase price LOWER or HIGHER than the current market price.
▪ Remember you are valuing the business for investment by a Private Equity Firm based on forecast financials and the capital structure which a PE
deal would use. In some cases market values simply do not allow a PE deal to be done using sensible assumptions. It may be that a deal is still
done but it will (unusually) have to make assumptions on an exit multiple higher than the entry multiple
▪ You are not approaching this as if it was a Public to Private deal (in P2P deals there is a need to value the business in a way that procures agreement
from existing shareholders to sell - which often needs a public market control premium which would complicate the assessment and therefore
should be ignored)
You should model the deal on the basis of appropriate Entry and Exit multiples - but also have the capacity to use common sense in relation to the
numbers actually used
▪ Use EBITDA only as your proxy for Entry Price, Debt Multiple & Cash flow to model returns
▪ In the Buyout Model assume EBITDA and EBIT are the same
▪ Ignore Capex in the assessment calculation. PE firms would only model identified capex in the model and they would assess follow on investment
independently e.g. for an acquisition. As a result, the benefits of future acquisitions cannot be modelled on Day 1 but can be commented on as part
of the investment case
▪ Ignore the current balance sheet (whether or not it has high, low or no debt). Your only choice is what debt level to use as part of the buyout capital
structure (making your own judgement on risk and return)
▪ The split between ordinary shares and loan note will be your choice - but assume that the loan note carries a 12% coupon
REMEMBER THAT YOU WILL NEED TO CUT AND PASTE YOUR MODEL INTO THE ASSESSMENT
Focus on the content headings in the assessment overview
▪ Assume that the current management team are the team that will progress the buyout
▪ There is no right or wrong - but there is a need for you to have given original thought to the assessment and base your conclusions on either specific
or widely accepted fact
▪ You should have an opinion and be bold
▪ Any clever analysis, table, graphic that you elect to use will likely improve your grade - but is not essential
REMEMBER THAT PERFORMANCE FROM PE BACKED BUSINESSES IN THE PRIVATE MARKET
MAY BE HIGHER THAN PUBLIC COMPANIES
Feel free to ask me for guidance on approach - but the thinking needs to be yours!