Question

Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the following...

Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the
following data:
A VC fund purchased the target company on 1.1.2020 for a price of €300k at a Price/EBIT-multiple
of 7.5x. 40% of the purchase price is funded by equity of the VC, remaining amount by bank loan at an
interest of 10% p.a., collateralized by the shares of the target company. The loan will be repaid on
31.12.2023, accrual for loan repayment is planned pro rata annually. All cash flows related to the purchase
will be pushed down into the target company’s P&L.
The target company runs operationally at annual revenues of €150k in 2020, growing each
upcoming year at 4%, while operational costs in 2020 are at €-110k at a future growth rate of 2% year-on-
year. In 2020, EBIT is €40k. Operational interest is at €-6.0k (and will be stable for the upcoming years). Tax
rate is 30%. There are no other operational P/L impacts.
The VC plans to sell the company on 31.12.2025 (= after 6 years) at a Price/EBIT-multiple of 7.5x
which was the same at purchase.
Please complete the financial model of the transaction based on the xls-table below. In case of lack of data,
please take a reasonable assumption for your subsequent calculation. Please calculate the planned annual
profitability of the VC fund and the overall internal rate of return. As the financing bank, what is your
recommendation in respect to the transaction and its risks and benefits?

Transaction data
Purchase price 300 €
Equity 120 €
Dept capital 180 €
Term debt 4 years bullit repayment
Annual debt accrual 45,0 €
Interest rate 10,0%
Tax rate 30%
Target company 2020 2021 2022 2023 2024 2025
Revenues 150,0
Costs operational -110,0
EBIT 40,0
Interest operational -6,0
Taxes -10,2
PBT 23,8

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Homework Answers

Answer #1

Assumption: Inflation - 0%

EBIT = Revenues - Costs operational

Taxes = 30%*(EBIT-Interest operational)

PBT = EBIT - Interest operational - Taxes

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