LBO VALUATION

Explanation notes

NOVEMBER 12, 2017

HUNNEWELL PARTNERS
ASSUMPTIONS

Our assumptions starting with assumptions of earning estimates.

Current year EBITDA equals 100 million.

Growth rate on EBITDA for upcoming years equals 10 % per year. we assumed that EBITDA increase by
stable rate without fluctuation.

Planned holding period before we make exit of company equals 5 years.

Corporate tax rate equals 35 % per year.

Depreciable life of assets equals 10 years. We assumed that assets life is 10 years.

Depreciation expense at year of LBO transactions equals 40 million. we assumed that in year of LBO
transaction before we make projection of future performance of company equals 40 million.

Annual capex before LBO transaction equals 50 million. We assumed that before projection of future
performance annual capex equals 50 million. Capex is higher than depreciation.

We assumed that in LBO transaction debt equals 75 % of total capital, which we used to acquire
company.

Interest cost on debt equals 14 % per year.

We assumed that acquire main company by EV / EBITDA multiple 5 x

Add on company acquired by EV / EBITDA multiple 3 x

We assumed exit multiple of EV / EBITDA equals 6 x

We constructed income statement for LBO valuation by 5-year time horizon.

Year 1 EBITDA calculated as current year EBITDA multiplied by 1 + growth rate

Year 1 EBITDA = 100 x 1.10 = 110

Year 2 EBITDA = 110 x 1.10 = 121

Year 3 EBITDA = 121 x 1.10 = 133.10

Year 4 EBITDA = 133.10 x 1.10 = 146.41

Year 5 EBITDA = 146.41 x 1.10 = 161.05

We calculated depreciation expense for projected period by the following

Depreciation expense in 1 year calculated as

Previous year depreciation expense + capex divided to useful life

1 year depreciation expense 40 + 50 /