You are working in a PE firm which is considering a majority stake investment in a rubber sealing

applications company based in China

Company is capable of generating EBITDA of USD 30 million annually from due diligence

Growth in the rubber seals industry is 5 percent annually according to your research

The company operates on a straight line basis with annual depreciation of about USD 5

million and is expected to upgrade a plant in years 3 and 4 for a capital expenditure of 30m

spread evenly over the 2 year period. Change in working capital is negligible.

The company is conservative and has a debt equity ratio of 0.5 with a tax rate of 22% and

debt financing rate of 5%.

Bloomberg shows companies in the same sector with beta of 1.4 and a debt equity ratio of

0.7. Stock market return in Shanghai is 18% with government debt yielding 3%

Owner is open to selling a majority stake or the entire company but is also considering an IPO

Companies trading in the Shanghai stock exchange in the same sector are currently valued

at an EV/EBITDA multiple of 9x. Peer acquisition multiples have been transacted at 11x

Using the data that you currently have, propose a valuation offer to present to the owner

State your assumptions in working out your valuation proposal

Preference is to use DCF method with a 6 to 8 year forecast horizon which is in line with your

existing plant technology competitive advantage

In addition to your valuation proposal, you can include any deal sweeteners that you think

would entice the owner to accept your proposal

Get into groups to discuss the activity and work out your proposal