Company B LBO Model

($ in millions)
Transaction Assumptions
Closing Date
2008 EBITDA
EBITDA Multiple
Purchase Price
Total Uses
Purchase Price
Financing Fees
Investment Banking Fees
Legal / Other Fees
Total Uses

Revolver Availability
Accounts Receivable
Inventory

Annual Management Fees

12/31/2008
$34.3
7.0x
$240.2
% of Total EBITDA
Total Sources
Available Capitalization Multiple
Revolver Availability
$9.0
3.6%
0.3x
Term Loan
$85.8
34.1%
2.5x
Second Lien Debt
$51.5
20.4%
1.5x
Unsecured Notes with Warrants$55.2
21.9%
1.6x
Total Debt
$201.5
80.0%
5.9x
Equity Investment
$50.4
20%
Total Sources
$251.8
100.0%

$240.2
$7.2
$2.4
$2.0
$251.8

Balance
$10.2
$3.1

% AvailableAvailability
65%
$6.6
75%
$2.3

$1.0

Interest Rate
Cash Pay
PIK
5%
5%
10%
0%
10%

% of Fully
Diluted Equity

5%

Next, I generated the Pro Forma balance sheet for Company B. 2008 historical balance sheet has
been populated. In the pre-transaction column, it is assumed that the seller (i) takes all cash out
of the company before the sale; and (ii) pays off all Company B debt prior to the transaction.

Amortizable Intangibles:
Financing Fees
Total Amortizable Intangibles

Goodwill Calculation:
Equity Purchase Price
Less: Book Value of Equity
Goodwill

$7.2
$7.2

$240.2
($207.3)
$33.0

Transaction Fees (excl. Financing Fees) Calculation

Investment Banking Fees
Legal/Other Fees
Transation Fees

$2.4
$2.0
$4.4

Company B Proforma Balance Sheet

($ in millions)
Balance Sheet
Assets
Cash
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets

Dec. 31
2008
$1.1
$10.2
$3.1
$1.0
$15.4

Adjustments
By the Seller
Pre-Transaction
($1.1)
$0.0
$0.0
$0.0
($1.1)

Proforma
Before New
Financing
$0.0
$10.2
$3.1
$1.0
$14.3

Gross PP&E
Cumulative Depreciation
Net PP&E

$243.8
$49.9
$194.0

$0.0
$0.0
$0.0

$243.8
$49.9
$194.0

$0.0
$0.0
$0.0

$0.0
$0.0
$0.0

$243.8
$49.9
$194.0

$0.0
$5.0
$213.3

$0.0
$0.0
$0.0

$7.2
$33.0
$40.2

$7.2
$38.0
$253.4

Capitalization of Fees / Amortizable

$0.0 Intangibles
$0.0
Goodwill
$5.0
$0.0
Total Assets
$214.4
($1.1)

Adjustments
Financing
Transaction
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0

Proforma
Balance Sheet
$0.0
$10.2
$3.1
$1.0
$14.3

Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities

$3.0
$2.0
$0.0
$5.0

$0.0
$0.0
$0.0
$0.0

$3.0
$2.0
$0.0
$5.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$3.0
$2.0
$0.0
$5.0

Existing Debt
Revolving Credit Facility
Term Loan
Second Lien Debt
Unsecured Debt

$20.0
$100.0
$0.0
$50.0

($20.0)
($100.0)
$0.0
($50.0)

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$9.0
$85.8
$51.5
$55.2

$0.0
$0.0
$0.0
$0.0

$9.0
$85.8
$51.5
$55.2

New Debt
Revolving Credit Facility
Term Loan
Second Lien Debt
Unsecured Debt
Other Liabilities
Total Liabilities

$1.0
$176.0

$0.0
($170.0)

$1.0
$6.0

$0.0
$201.5

$0.0
$0.0

$1.0
$207.5

Shareholders Equity
Retainined Earnings
$38.4
Other (Plug / Balance)
$0.0
Total Shareholders Equity $38.4

$0.0
$168.9
$168.9

$38.4
$168.9
$207.3

$0.0
$0.0
$0.0

($42.8)
($118.5)
($161.3)

($4.4)
$50.4
$46.0

Total Liabilities and Equity $214.4

Check
$0.0

($1.1)
$0.0

$213.3
$0.0

$201.5
$201.5

($161.3)
($201.5)

$253.4
$0.0

Reasonable assumptions create valuable projection models.

COMPANY B FINANCIAL MODEL

Operating and Balance Sheet Assumptions
($ in millions)
Income Statement Drivers
Revenue Growth Rate

2003A
na

HISTORICAL FINANCIAL STATEMENTS

Fiscal Year Ending December 31,
2004A
2005A
2006A
2007A
30%
8%
3%
4%

2008A
4%

PROJECTED FINANCIAL STATEMENTS

Fiscal Year Ending December 31,
2009E
2010E
2011E
2012E
4%
4%
4%
4%

COGS as a % of Sales

30%

31%

31%

32%

32%

32%

32%

32%

32%

32%

Depreciation as % of Gross PP&E

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

$1.4

$1.4

$1.4

$1.4

Amortization

SG&A as % of Sales

24%

23%

23%

24%

24%

24%

24%

24%

24%

24%

Other Income

$2.0

$0.0

($2.0)

$1.0

$0.0

$0.0

$0.0

$0.0

$0.0

$0.0

Tax Rate

38%

38%

38%

38%

38%

38%

38%

38%

38%

38%

Balance Sheet Drivers

Accounts Receivable
Inventory
Other Current Assets

59
60
$1.0

48
47
$1.0

46
45
$1.0

47
45
$1.0

47
45
$1.0

47
45
$1.0

47
45
$1.0

47
45
$1.0

47
45
$1.0

47
45
$1.0

na
na

9%
$0.0

10%
$2.0

11%
$1.0

12%
$0.0

12%
$0.0

12%
$0.0

12%
$0.0

12%
$0.0

12%
$0.0

48
7%
$1.0
$1.0

36
8%
$0.0
$1.0

49
9%
$2.0
$1.0

47
9%
$1.0
$1.0

45
8%
$0.0
$1.0

43
8%
$0.0
$1.0

43
8%
$0.0
$1.0

43
8%
$0.0
$1.0

43
8%
$0.0
$1.0

43
8%
$0.0
$1.0

$12.3
$0.0
$0.0

$12.3
$0.0
$0.0

$12.3
$0.0
$0.0

$12.3
$0.0
$0.0

3%

3%

3%

3%

Capex as % of Sales
Asset Disposition
Accounts Payable
Accrued Liabilities - % of COGS
Other Current Liabilities
Other Liabilities
Term Loan Amortization (over 7 years)
Second Lien Debt Amortization
Unsecured Debt Amortization
Cash Interest Rate

In the model section, 2003-2008 financial statements have been populated. Inserting 2008 Pro
Forma balance sheet and linking assumptions to the model, I projected 2009-2012 financial
statements for Company B.
COMPANY B FINANCIAL MODEL

2003A

HISTORICAL FINANCIAL STATEMENTS

Fiscal Year Ending December 31,
2004A
2005A
2006A
2007A

Income Statement
Revenue
Revenue Growth Rate

$50.0
na

$65.0
30%

$70.0
8%

$72.0
3%

$75.0
4%

$78.0
4%

$81.1
4%

$84.4
4%

$87.7
4%

$91.2
4%

Cost of Goods Sold (1)

COGS as % of Sales

$15.0
30%

$20.0
31%

$22.0
31%

$23.0
32%

$24.0
32%

$25.0
32%

$26.0
32%

$27.0
32%

$28.1
32%

$29.2
32%

Depreciation
Depreciation as % of Gross PP&E

$4.0
2%

$4.0
2%

$4.0
2%

$4.0
2%

$4.0
2%

$4.9
2%

$5.1
2%

$5.3
2%

$5.5
2%

$5.7
2%

Amortization

$0.0

$0.0

$0.0

$0.0

$0.0

$0.0

$1.4

$1.4

$1.4

$1.4

Gross Profit
Gross Margin

$31.0
62%

$41.0
63%

$44.0
63%

$45.0
63%

$47.0
63%

$48.2
62%

$48.6
60%

$50.7
60%

$52.7
60%

$54.9
60%

SG&A Expenses:
Management Fees
SG&A Expenses
Total SG&A Expenses
SG&A as % of Sales

$12.0

$15.0

$16.0

$17.0

$18.0

$18.7

24%

23%

23%

24%

24%

24%

$1.0
$19.5
$20.5
24%

$1.0
$20.2
$21.2
24%

$1.0
$21.1
$22.1
24%

$1.0
$21.9
$22.9
24%

Operating Income / EBIT

% of Sales
Growth Rate

$19.0
38%
na

$26.0
40%
37%

$28.0
40%
8%

$28.0
39%
0%

$29.0
39%
4%

$29.4
38%
2%

$28.2
35%
-4%

$29.4
35%
4%

$30.7
35%
4%

$32.0
35%
4%

EBITDA
EBITDA Margin
EBITDA Growth Rate

$23.0
46%
na

$30.0
46%
30%

$32.0
46%
7%

$32.0
44%
0%

$33.0
44%
3%

$34.3
44%
4%

$34.7
43%
1%

$36.1
43%
4%

$37.6
43%
4%

$39.1
43%
4%

Interest Expense
Interest Income
Net Interest Expense

$12.4
$0.1
$12.3

$12.5
$0.3
$12.2

$12.5
$0.5
$12.1

$12.5
$0.6
$11.9

$12.6
$0.7
$11.9

$12.9
$0.9
$11.9

$15.2
$0.0
$15.2

$15.2
$0.0
$15.2

$15.2
$0.0
$15.2

$15.2
$0.0
$15.2

Other Income / (Expense)

$2.0

$0.0

($2.0)

$1.0

$0.0

$0.0

$0.0

$0.0

$0.0

$0.0

Pretax Income

$8.7

$13.8

$13.9

$17.1

$17.1

$17.5

$13.0

$14.2

$15.5

$16.8

Taxes
Effective Tax Rate

$3.3
38%

$5.2
38%

$5.3
38%

$6.5
38%

$6.5
38%

$6.6
38%

$4.9
38%

$5.4
38%

$5.9
38%

$6.4
38%

Net Income
$5.4
Net Income Margin
11%
(1) Excludes depreciation and amortization

$8.5
13%

$8.6
12%

$10.6
15%

$10.6
14%

$10.8
14%

$8.1
10%

$8.8
10%

$9.6
11%

$10.4
11%

($ in millions)

2008A

Pro Forma
2008B/S

PROJECTED FINANCIAL STATEMENTS

Fiscal Year Ending December 31,
2009E
2010E
2011E
2012E

Balance Sheet
Assets
Cash
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets

$5.0
$8.2
$2.5
$1.0
$16.7

$12.5
$8.6
$2.6
$1.0
$24.8

$24.1
$9.0
$2.8
$1.0
$36.9

$30.2
$9.5
$2.9
$1.0
$43.5

$35.2
$9.9
$3.0
$1.0
$49.1

$1.1
$10.2
$3.1
$1.0
$15.4

$0.0
$10.2
$3.1
$1.0
$14.3

$0.0
$10.6
$3.2
$1.0
$14.8

$0.0
$11.0
$3.4
$1.0
$15.4

$0.0
$11.5
$3.5
$1.0
$16.0

$0.0
$11.9
$3.6
$1.0
$16.6

Gross PP&E
Cumulative Depreciation
Net PP&E

$164.3
$25.0
$139.3

$179.8
$30.0
$149.8

$194.8
$35.0
$159.8

$212.6
$40.0
$172.6

$234.5
$45.0
$189.5

$243.8
$49.9
$194.0

$243.8
$49.9
$194.0

$253.6
$54.9
$198.6

$263.7
$60.2
$203.5

$274.2
$65.7
$208.5

$285.2
$71.4
$213.8

Capitalization of Fees / Amortizable Intangibles

Goodwill
$5.0
Total Assets
$161.0

$5.0
$179.6

$5.0
$201.7

$5.0
$221.1

$5.0
$243.6

$5.0
$214.4

$7.2
$38.0
$253.4

$5.8
$38.0
$257.2

$4.3
$38.0
$261.2

$2.9
$38.0
$265.3

$1.4
$38.0
$269.7

$2.0
$1.0
$1.0
$4.0

$2.0
$1.5
$0.0
$3.5

$3.0
$2.0
$2.0
$7.0

$3.0
$2.0
$1.0
$6.0

$3.0
$2.0
$0.0
$5.0

$3.0
$2.0
$0.0
$5.0

$3.0
$2.0
$0.0
$5.0

$3.1
$2.1
$0.0
$5.2

$3.2
$2.2
$0.0
$5.4

$3.4
$2.2
$0.0
$5.6

$3.5
$2.3
$0.0
$5.8

$6.0
$100.0

$8.0
$100.0

$9.0
$100.0

$9.0
$100.0

$10.0
$100.0

$20.0
$100.0

$50.0

$50.0

$50.0

$50.0

$50.0

$50.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$0.0
$0.0
$0.0
$0.0

$9.0
$85.8
$51.5
$55.2

$11.2
$73.5
$51.5
$60.8

$12.3
$61.3
$51.5
$66.8

$12.2
$49.0
$51.5
$73.5

$10.9
$36.8
$51.5
$80.9

Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities
Existing Debt
Revolving Credit Facility
Term Loan
Second Lien Debt
Unsecured Debt
New Debt
Revolving Credit Facility
Term Loan
Second Lien Debt
Unsecured Debt
Other Liabilities
Total Liabilities

$1.0
$161.0

$1.0
$162.5

$1.0
$167.0

$1.0
$166.0

$1.0
$166.0

$1.0
$176.0

$1.0
$207.5

$1.0
$203.2

$1.0
$198.3

$1.0
$192.9

$1.0
$186.9

Shareholders Equity
Retainined Earnings
Other (Plug / Balance)
Total Shareholders Equity

$0.0
$0.0
$0.0

$17.1
$0.0
$17.1

$34.7
$0.0
$34.7

$55.1
$0.0
$55.1

$77.6
$0.0
$77.6

$38.4
$0.0
$38.4

($4.4)
$50.4
$46.0

$3.7
$50.4
$54.0

$12.5
$50.4
$62.9

$22.1
$50.4
$72.5

$32.5
$50.4
$82.9

Total Liabilities and Equity

Check

$161.0
$0.0

$179.6
$0.0

$201.7
$0.0

$221.1
$0.0

$243.6
$0.0

$214.4
$0.0

$253.4
$0.0

$257.2
$0.0

$261.2
($0.0)

$265.3
($0.0)

$269.7
($0.0)

Cash Flow
Net Income
Plus / (minus):
Depreciation and Amortization
Changes in Working Capital
Accounts Receivable
Inventory
Other Current Assets
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Change in Other Liabilities
Cash Flows from Operations

na

$8.5

$8.6

$10.6

$10.6

$10.8

$8.1

$8.8

$9.6

$10.4

na

$4

$4

$4

$4

$5

$7

$7

$7

$7

na
na
na
na
na
na
na
na

($0.4)
($0.1)
$0.0
$0.0
$0.5
($1.0)
$0
$11.5

($0.4)
($0.1)
$0.0
$1.0
$0.5
$2.0
$0
$15.6

($0.4)
($0.1)
$0.0
$0.0
$0.0
($1.0)
$0
$13.0

($0.4)
($0.1)
$0.0
$0.0
$0.0
($1.0)
$0
$13.1

($0.3)
($0.1)
$0.0
$0.0
$0.0
$0.0
$0
$15.3

($0.4)
($0.1)
$0.0
$0.1
$0.1
$0.0
$0
$14.3

($0.4)
($0.1)
$0.0
$0.1
$0.1
$0.0
$0
$15.2

($0.4)
($0.1)
$0.0
$0.1
$0.1
$0.0
$0
$16.2

($0.5)
($0.1)
$0.0
$0.1
$0.1
$0.0
$0
$17.2

Cash Flows from Investing

Capital Expenditures
Asset Dispostions
Cash Flows from Investing

na
na
na

($6.0)
$0.0
($6.0)

($7.0)
$2.0
($5.0)

($8.0)
$1.0
($7.0)

($9.0)
$0.0
($9.0)

($9.4)
$0.0
($9.4)

($9.7)
$0.0
($9.7)

($10.1)
$0.0
($10.1)

($10.5)
$0.0
($10.5)

($10.9)
$0.0
($10.9)

Cash Flows from Financing

Special Dividend
Change in Revolver
Change in Term Loan
Changes in Second Lien Debt
Change in Unsecured Debt
Total Cash Flows from Financing

na
na
na
na
na
na

$0.0
$2.0
$0.0
na
$0.0
$2.0

$0.0
$1.0
$0.0
na
$0.0
$1.0

$0.0
$0.0
$0.0
na
$0.0
$0.0

$0.0
$1.0
$0.0
na
$0.0
$1.0

($50.0)
$10.0
$0.0
na
$0.0
($40.0)

$0.0
$2.2
($12.3)
$0.0
$5.5
($4.5)

$0.0
$1.1
($12.3)
$0.0
$6.1
($5.1)

$0.0
($0.1)
($12.3)
$0.0
$6.7
($5.6)

$0.0
($1.3)
($12.3)
$0.0
$7.4
($6.2)

Total Cash Flow

na

$7.5

$11.6

$6.0

$5.1

($34.1)

$0.0

($0.0)

($0.0)

($0.0)

Beginning Cash Position

Change in Cash Position
Ending Cash Position
Check - Cash Flow / Revolver

na
na
na

$5.0
$7.5
$12.5

$12.5
$11.6
$24.1

$24.1
$6.0
$30.2

$30.2
$5.1
$35.2

$35.2
($34.1)
$1.1

$0.0
$0.0
$0.0
($2.2)

$0.0
($0.0)
($0.0)
($1.1)

$0.0
($0.0)
($0.0)
$0.1

$0.0
($0.0)
($0.0)
$1.3

Debt and Interest Schedule

Revolver
Beginning Balance
Plus: Drawdown / (Paydown)
Ending Balance

$9.0
$2.2
$11.2

$11.2
$1.1
$12.3

$12.3
($0.1)
$12.2

$12.2
($1.3)
$10.9

Cash Interest Rate

Cash Interest Expense

5%
$0.5

5%
$0.6

5%
$0.6

5%
$0.6

Term Loan
Beginning Balance
Plus: Drawdown / (Paydown)
Ending Balance

$85.8
($12.3)
$73.5

$73.5
($12.3)
$61.3

$61.3
($12.3)
$49.0

$49.0
($12.3)
$36.8

Cash Interest Rate

Cash Interest Expense

5%
$4.0

5%
$3.4

5%
$2.8

5%
$2.1

Second Lien
Beginning Balance
Plus: Drawdown / (Paydown)
Ending Balance

$51.5
$0.0
$51.5

$51.5
$0.0
$51.5

$51.5
$0.0
$51.5

$51.5
$0.0
$51.5

Cash Interest Rate

Cash Interest Expense

10%
$5.1

10%
$5.1

10%
$5.1

10%
$5.1

Unsecured Debt
Beginning Balance
Plus: Drawdown / (Paydown)
Plus: Accrued Interest
Ending Balance

$55.2
$0.0
$5.5
$60.8

$60.8
$0.0
$6.1
$66.8

$66.8
$0.0
$6.7
$73.5

$73.5
$0.0
$7.4
$80.9

Cash Interest Rate

Cash Interest Expense
PIK Interest Rate
PIK Interest Expense (Accumulated)

0%
$0.0
10%
$5.5

0%
$0.0
10%
$11.6

0%
$0.0
10%
$18.3

0%
$0.0
10%
$25.6

Total Cash Interest Expense

Total PIK Interest Expense
Total Interest Expense on Income Statement

$9.6
$5.5
$15.2

$9.1
$6.1
$15.2

$8.5
$6.7
$15.2

$7.9
$7.4
$15.2

Interest Earned on Cash

Cash Interest Rate

$0.0
3%

($0.0)
3%

($0.0)
3%

($0.0)
3%

-MIN(Check-Cash Flow/Revolver, Revolver BEG Balance)

PIK, Payment in Kind, is an interest

accruing financing until maturity.

Future financial statistics are calculated in terms of the model.

FINANCIAL SUMMARY
Income Statement Statistics
Revenue
EBITDA
Net Income
Net Interest Expense
Cash Interest Expense
Taxes

2008PF

2009P

2010P

2011P

2012P

$78.0
$34.3
na
na
na
na

$81.1
$34.7
$8.1
$15.2
$9.6
$4.9

$84.4
$36.1
$8.8
$15.2
$9.1
$5.4

$87.7
$37.6
$9.6
$15.2
$8.5
$5.9

$91.2
$39.1
$10.4
$15.2
$7.9
$6.4

na
44%
na
na
na

4%
43%
1%
na
10%

4%
43%
4%
9%
10%

4%
43%
4%
9%
11%

4%
43%
4%
8%
11%

$1.1
$170.0
$168.9
$120.0
$9.4
($0.4)
$0.0

$0.0
$197.0
$197.0
$136.2
$9.7
($0.3)
$0.0

$0.0
$191.9
$191.9
$125.1
$10.1
($0.3)
($0.0)

$0.0
$186.3
$186.3
$112.7
$10.5
($0.4)
($0.0)

$0.0
$180.0
$180.0
$99.2
$10.9
($0.4)
($0.0)

5.0x
4.9x
3.5x
na
na

5.7x
5.7x
3.9x
2.3x
3.6x

5.3x
5.3x
3.5x
2.4x
4.0x

5.0x
5.0x
3.0x
2.5x
4.4x

4.6x
4.6x
2.5x
2.6x
5.0x

Interest Coverage Statistics

EBITDA / Net Interest Expense
EBITDA / Cash Interest
EBITDA - Capex / Net Interest Expense
EBITDA - Capex / Cash Interest Expense
EBITDA - Capex - W/C / Net Interest Expense
EBITDA - Capex - W/C / Cash Interest Expense
EBITDA - Capex - W/C - Taxes/ Net Interest Expense
EBITDA - Capex - W/C - Taxes/ Cash Interest Expense

2.3x
3.6x
1.6x
2.6x
1.7x
2.6x
1.3x
2.1x

2.4x
4.0x
1.7x
2.9x
1.7x
2.9x
1.4x
2.3x

2.5x
4.4x
1.8x
3.2x
1.8x
3.2x
1.4x
2.5x

2.6x
5.0x
1.9x
3.6x
1.9x
3.6x
1.5x
2.8x

Revenue Growth
EBITDA Margin
EBITDA Growth
Net Income Growth
Net Income Margin
Balance Sheet / Cash Flow Statistics
Cash
Total Debt
Net Debt
Secured Debt
Capex
W/C
Check
Leverage Ratios
Total Debt / EBITDA
Net Debt / EBITDA
Secured Debt / EBITDA
EBITDA / Net Interest Expense
EBITDA / Cash Interest Expense

According to the projected data, Company Bs leverage is going to slide down after the
transaction. Two primary reasons are (i) EBITDA will go up as revenue is assumed to increase
by 4% each year and (ii) total debt would decrease by term loan amortization.

Assuming the financial sponsor sells Company B in 2012, how much would it earn from the
investment? Would this transaction be a good deal for the financial sponsor?

Transaction Assumptions -Sale in 2012

Closing Date
2012 EBITDA
EBITDA Multiple
Purchase Price
Less: Debt
Plus: Cash
Less: Fees
Proceeds for Distribution

12/31/2012
$39.1
7.0x
$274.0
($180.0)
$0.0
($4.7)
$89.3

% Equity to Financial Sponsor

95.00%

Equity Proceeds to Fin Sponsor

$84.8

% Equity to Unsecured Lender

Equity Proceeds to Unsecured Lender

5%
$4.5

IRR to Financial Sponsor 12/31/2008

Initial Equity Investment
($50.4)
Dividends
$0.0
Proceeds from Sale
$0.0
Cash Flows to Fin Sponsor
($50.4)
IRR to Financial Sponsor
13.9%

12/31/2009 12/31/2010 12/31/2011

$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0

12/31/2012
$0.0
$0.0
$84.8
$84.8

IRR to Unsecured Lender 12/31/2008

Initial Loan
($55.2)
Cash Interest
$0.0
Repayment of Principal
$0.0
Equity Proceeds
$0.0
Cash Flows to Unsecured Lenders($55.2)
IRR to Unsecured Lender
11.5%

12/31/2009 12/31/2010 12/31/2011

$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0

12/31/2012
$0.0
$0.0
$80.9
$4.5
$85.3

According to the above table, the internal rate of return to the financial sponsor is 13.9% by
assuming a 7.0x EBITDA multiple and a 20% equity investment as % of total capitalization, and
11.5% for the unsecured lender. To see how these two factors would contribute to the financial
sponsors IRR, I set up a sensitivity table as the following. It indicates that both factors are
negatively related to the IRR. Theoretically, the lower the EBITDA multiple and the lower the
equity investment percentage, the higher the IRR to the financial sponsor (opposite for unsecured
lenders). However, the solvency risk to the acquirer would also climb up along with the increase
of its IRR, and too much debt would make lenders doubt acquirers repayment ability and scare
away potential lenders. Thus, acquirers have to tradeoff between risks and returns.

Equity Investment as % of Total

Capitalization

Equity Investment as % of Total

Capitalization

Equity Investment as % of Total

Capitalization

Sensitivity Tables

$200.4
5.5x
30.2%
26.3%
23.4%
21.2%
19.6%
18.2%
17.0%
16.1%
15.3%
14.6%
14.0%

IRR TO FINANCIAL SPONSOR

Purchase Price (including fees) / Multiple Paid
$217.5
$234.7
$251.8
$269.0
$286.2
6.0x
6.5x
7.0x
7.5x
8.0x
26.9%
23.9%
21.1%
18.6%
16.2%
23.4%
20.8%
18.4%
16.2%
14.2%
20.9%
18.6%
16.5%
14.6%
12.8%
18.9%
16.9%
15.0%
13.3%
11.8%
17.5%
15.6%
13.9%
12.4%
11.0%
16.3%
14.5%
13.0%
11.6%
10.4%
15.3%
13.7%
12.3%
11.0%
9.9%
14.4%
13.0%
11.7%
10.5%
9.4%
13.7%
12.4%
11.2%
10.1%
9.1%
13.1%
11.8%
10.7%
9.7%
8.8%
12.6%
11.4%
10.3%
9.4%
8.5%

$303.3
8.5x
13.9%
12.3%
11.2%
10.4%
9.7%
9.2%
8.8%
8.5%
8.2%
8.0%
7.8%

$320.5
9.0x
11.8%
10.5%
9.7%
9.0%
8.6%
8.2%
7.9%
7.6%
7.4%
7.2%
7.1%

$200
11.5% -2.50%
10.0%
9.7%
12.5%
9.6%
15.0%
9.5%
17.5%
9.4%
20.0%
9.2%
22.5%
9.0%
25.0%
8.8%
27.5%
8.5%
30.0%
8.0%
32.5%
7.3%
35.0%
6.1%

IRR TO UNSECURED LENDER

% of Equity to Unsecured Lender
$218
$235
$252
$269
$286
0.00%
2.50%
5.00%
7.50%
10.00%
10.0%
10.3%
10.7%
11.0%
11.3%
10.0%
10.4%
10.8%
11.2%
11.6%
10.0%
10.5%
11.0%
11.5%
12.0%
10.0%
10.6%
11.2%
11.8%
12.4%
10.0%
10.7%
11.5%
12.2%
12.9%
10.0%
10.9%
11.8%
12.7%
13.5%
10.0%
11.1%
12.2%
13.3%
14.4%
10.0%
11.4%
12.8%
14.1%
15.4%
10.0%
11.8%
13.6%
15.3%
16.9%
10.0%
12.5%
14.8%
17.0%
19.0%
10.0%
13.5%
16.7%
19.7%
22.5%

$303
12.50%
11.6%
12.0%
12.4%
13.0%
13.6%
14.4%
15.4%
16.7%
18.4%
21.0%
25.1%

$320
15.00%
11.9%
12.4%
12.9%
13.5%
14.3%
15.2%
16.4%
17.9%
19.9%
22.9%
27.5%

$303
8.5x
$8.2
$8.5
$8.8
$9.1
$9.4
$9.7
$10.0
$10.4
$11.0
$11.7
$12.3

$320
9.0x
$7.6
$7.9
$8.2
$8.5
$8.8
$9.1
$9.4
$9.7
$10.1
$10.6
$11.3

13.9%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
32.5%
35.0%

$12.3
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
32.5%
35.0%

$200
5.5x
$15.7
$16.6
$17.6
$18.5
$19.4
$20.3
$21.3
$22.2
$23.1
$24.1
$25.0

Maximum Revolver Drawn 2007 - 2010

Purchase Price (including fees) / Multiple Paid
$218
$235
$252
$269
$286
6.0x
6.5x
7.0x
7.5x
8.0x
$13.4
$11.6
$10.2
$9.5
$8.9
$14.1
$12.1
$10.7
$9.8
$9.2
$14.8
$12.7
$11.3
$10.1
$9.4
$15.6
$13.5
$11.8
$10.5
$9.7
$16.6
$14.2
$12.3
$11.0
$10.0
$17.6
$15.0
$13.1
$11.6
$10.4
$18.6
$15.9
$13.9
$12.1
$11.0
$19.6
$17.0
$14.7
$12.9
$11.6
$20.6
$18.1
$15.6
$13.8
$12.1
$21.6
$19.2
$16.8
$14.7
$13.0
$22.6
$20.3
$18.0
$15.6
$13.9