Project Brahms and Bc Partners

University of Chicago Law School and Booth School of Business

Corporate and Entrepreneurial Finance - LAWS 42603-01 - Spring 2017

Professor Steven Kaplan

Student Felipe Borges Lacerda Loiola

Case: Project Brahms and BC Partners

1. What makes a company a good leveraged buyout (LBO) candidate? Qualitatively, is Brahms

such a candidate?

(a) stock trading at a lower multiple to FCF as compared to competitors (Brahms complies with this requirement with a multiple of 2 in 2006 versus 9.4 and 12.4 as means for European and US distributors, respectively); (b) low debt so FC may be used to repay principal and interest due under purchaser’s financing (here, Brahms is behind competitors with a net debt of approx. 2,300 mi in 2006 against 346 and 223 for European and US distributors, respectively); (c) inefficient management and potential to create value upon a change in the administration (management team seems pretty good according to their biographies and the impression BC Partners had of them); (d) low WC (not applicable to Brahms, since WC was not stable and committed up to 75% of operating cash flow in previous years) and steady CF (as of 2007, operating cash flow was consistent and around 343 mi to 419 mi); (e) low CAPEX requirements (average of 25% yearly CAPEX seems high); and (e) exit options (IPO and tertiary LBO seem feasible and BC Partners needs to weight the pros and cons of each option).

2. Is the price BC Partners is offering appropriate? This will require an APV analysis. Assume the

deal closes at the end of 2006. What APV, IRR and MOIC (Multiple of Invested Capital) can BC

Partners expect? In your IRR and MOIC calculations, treat the shareholder loan as part of the BC

Partners “equity” investment. In other words, calculate the IRR on all money BC Partners puts

in. Long-run inflation is 2%.

The price is higher than Brahams APV. While the proposed 8.6 X EBITDA is 2,855.2, the APV is 1,546.94.

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