Brazos Comark Case

At $40 million, is this a good deal for Brazos. If so how much do you project that CoMark is really worth? What is the projected return for Brazos with a 5 year exit?

In order to find out whether this deal is lucrative and feasible for Brazos, you need to carry out a valuation analysis for the company. However, even before carrying out the relevant analysis, one should dig deeper into the LBO and find out whether this deal is good for Brazos from a non- financial perspective. Firstly, this investment is attractive for Brazos because the target firm fits the investment strategy criteria. Secondly, the business is in a growing phase, and at the same time the business processes employed at CoMark are efficient and cost effective in comparison to the rest of the industry. Thirdly, the management of the target firm is good and up to the mark of providing the required boost to the company. At the same time, Brazos's owners have a good match of philosophy with that of CoMark's owners. Fourthly, the business is somehow recession resistant. Apart from this resistance, a larger portion of the target firm's business is carried out with government which in turn makes the cash flow streams more stable and unwavering. All these characteristics point out that CoMark is feasible LBO target.

Two types of valuations, namely the DCF and comparable analysis, can be carried out in order to find out the value of CoMark. Let's first move onto the comparable company valuation method. CoMark was a unique company in terms of its business segment and geographical distribution. Among the list of all the available companies, only one company, ModTech Holdings, Inc is a good match. Apart from its large size, the business process and target market of both the firms are quite alike. Also, as limited data is available for CoMark, therefore, only EBDITA and revenue multiple valuations can be carried out. The following table depicts the relevant calculations pertaining to the EBDITA multiple.

Enterprise Value of ModTech for 2000 using EBITDA Mutiple (in $Million)

Market Capitalization 96.8

Total Debt 38.5

Cash and Cash Equivalents 0.00

Enterprise Value 135.30

EBITDA for 2000 28.3

EBITDA Multiple 4.78

Value of CoMark 70.28

The EBDITA multiple comes out to be 4.78X. The EBDITA multiple shows that CoMark is worth $70.28 million. AS there is no explicit information on cash and cash equivalents, therefore, they are assumed to be zero.

The flowing table shows the relevant calculations pertaining to revenue multiple.

Enterprise Value of ModTech for

...