Would you buy it?
Meridian Components · Fictional case
- EBITDA
$12m
Fictional case assumption. Start with $14m reported EBITDA and subtract a one-time $2m gain to get $12m normalized EBITDA.- Debt
$18m
The fictional target has $18m of debt outstanding. Add it to the equity offer to reflect obligations taken on.- Excess cash
$6m
The fictional target holds $6m above operating cash needs. Subtract this amount from equity plus debt to estimate enterprise value.
Current EV / EBITDA
Above hurdle8×
Enterprise value is $84m equity + $18m debt − $6m excess cash = $96m. Divide by $12m EBITDA to get 8×.
5×7.0× hurdle10×
The moving marker is the current 8× offer. The fixed tick is this case’s 7.0× screen. At $12m EBITDA, it permits $84m enterprise value or $72m equity after subtracting $12m net debt.
Adjust the offer to meet the 7.0× acquisition hurdle.
Advanced case · Finance the acquisition
Leveraged acquisition
Buy a fictional business for $100m. Test how leverage and exit assumptions change sponsor returns.
Annualized equity return
14.87 %
Entry equity = 100 − 60 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
$80m of exit equity on $40m invested is 2×. No fees or interim distributions.
Sensitivity to entry debt ($m)
0-4.36
Entry equity = 100 − 0 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
241.03
Entry equity = 100 − 24 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
489
Entry equity = 100 − 48 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
7122.5
Entry equity = 100 − 71 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
9574.11
Entry equity = 100 − 95 USD m. Exit equity = max(120 − 40, 0) = 80 USD m. Divide exit by entry equity, take the 5-year root, then subtract 1.
Outputs in %. Other assumptions held fixed.
Three-year debt sweep
Model a $100m acquisition, with no additional borrowing or interim distributions. Cash available is already after interest.
Exit equity proceeds
90 USD m
Debt after each annual payment (USD m): 50 → 40 → 30. Exit proceeds = max(120 exit EV − 30 debt, 0). Cash beyond the debt balance is excluded.
Year-end debt (USD m): 50 → 40 → 30. Sponsor MOIC is 2.25× before fees.
Sensitivity to opening debt ($m)
0120
Debt after each annual payment (USD m): 0 → 0 → 0. Exit proceeds = max(120 exit EV − 0 debt, 0). Cash beyond the debt balance is excluded.
24120
Debt after each annual payment (USD m): 14 → 4 → 0. Exit proceeds = max(120 exit EV − 0 debt, 0). Cash beyond the debt balance is excluded.
48102
Debt after each annual payment (USD m): 38 → 28 → 18. Exit proceeds = max(120 exit EV − 18 debt, 0). Cash beyond the debt balance is excluded.
7179
Debt after each annual payment (USD m): 61 → 51 → 41. Exit proceeds = max(120 exit EV − 41 debt, 0). Cash beyond the debt balance is excluded.
9555
Debt after each annual payment (USD m): 85 → 75 → 65. Exit proceeds = max(120 exit EV − 65 debt, 0). Cash beyond the debt balance is excluded.
Outputs in USD m. Other assumptions held fixed.