Cobalt Packaging makes corrugated boxes and protective packaging for e-commerce shippers. It's a steady, cash-generative business, and a private equity sponsor wants to buy it with a lot of borrowed money.
- LTM EBITDA
- $120M
- Purchase multiple
- 8.5x EBITDA
- Debt raised
- 5.00x EBITDA at 9.0%
- Transaction fees
- $25M
- EBITDA growth
- 6.0% a year
- D&A / capex
- 25% / 30% of EBITDA
- Working capital
- 10% of each year's EBITDA increase
- Tax rate
- 25%
- Exit
- End of year 5 at 8.5x EBITDA
- Sponsor's target return
- 25% IRR
Your assignment
All free cash flow goes to paying down debt (interest is charged on each year's opening balance). Work out what the sponsor puts in, what it gets out, and its returns, then the most it could pay for a target return.