FIN 3512 CLASSWORK 11.20.

2019
RPG Corp.
EXIT ANALYSIS

Bain Capital ("Bain"), an international private equity firm, is considering the purchase of RPG Corp. a specialty
chemical company. Bain will hold the investment for four to six years. It targets an annual minimum return on
its investments of 25% over the holding period. It prefers to sell their invesmtment rather than taking them
public due to lock-up periods associated with IPOs as well as the extended period it takes to sell the position in
the open market.

It plans to submit a bid for RPG of 8X 2020 EBITDA and finance the acquisition with debt of 65% of the
purchase price and the remaining 35% will be an equity investment from its most recent fund. Transaction
expenses will total $25 million which will be funded through an equity contribution. The debt financing will
consist of a $2.0 billion term loan at an annual interest rate of 5.5% that will mature in seven years with annual
principal amortization requirements of 10% of the original principal amount, and the issuance $1.375 billion of
8.0% subordinated notes with a bullet maturity in ten years.

Bain plans to grant management a 5% ownership in the company over the holding period of the investment
assuming the 20% target rate of return is achieved on the aggregate purchase price.
TRANSACTION
RPG CORP.
$ in millions

Sources
Equity $ 1,725.0 34%
Term debt 2,000.0 39%
Subordinated notes 1,375.0 27%
Total Sources $ 5,100.0 100%

Uses
Purchase Price $ 5,075.0
Transaction Expenses 25.0
Total Uses $ 5,100.0
PROJECTIONS
RPG Corp.
$ in millions

2020 2021 2022 2023 2024 2025

Revenue $ 2,625.0 $ 2,756.3 $ 2,907.8 $ 3,089.6 $ 3,267.2 $ 3,414.3

Growth Rate n/a 5.0% 5.5% 6.3% 5.8% 4.5%

Cost of Goods Sold 1,753.8 1,842.0 1,935.8 2,035.4 2,148.8 2,235.4

Gross Profit 871.20 914.25 972.04 1,054.18 1,118.44 1,178.86

Gross Profit Margin 33.2% 33.2% 33.4% 34.1% 34.2% 34.5%

Selling and Marketing Expenses 144.4 151.6 159.9 169.9 179.7 195.2
General and Administrative 101.8 104.4 108.5 113.4 118.2 122.5
Depreciation and Amortization 105.5 113.0 119.2 126.7 134.0 140.0
Total Expenses 351.7 369.0 387.7 410.0 431.9 457.7

EBIT $ 519.5 $ 545.3 $ 584.4 $ 644.2 $ 686.6 $ 721.2

EBIT Margin 19.8% 19.8% 20.1% 20.9% 21.0% 21.1%

Beginning
Debt Outstanding Balance
Term Loan $ 2,000.0
Principal Payment 10% $ 200.00 $ 200.00 $ 200.00 $ 200.00 $ 200.00 $ 200.00
Ending Balance 1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0

Subordinated Notes 1,375.0 1,375.0 1,375.0 1,375.0 1,375.0 1,375.0 1,375.0

Debt Outstanding $ 3,375.00 $ 3,175.00 $ 2,975.00 $ 2,775.00 $ 2,575.00 $ 2,375.00 $ 2,175.00

EXIT ANALYSIS
RPG Corp.
$ in millions

2023 2024 2025

Years Until Exit 4.0 5.0 6.0

Target Return 25.0% 25.0% 25.0%
Potential Management Interest 5.0% 5.0% 5.0%
EBITDA $ 770.9 $ 820.5 $ 861.2

Invested Capital Values

Exit Multiples
8.0 $ 6,166.9 $ 6,564.3 $ 6,889.3
9.0 $ 6,937.7 $ 7,384.8 $ 7,750.4
10.0 $ 7,708.6 $ 8,205.4 $ 8,611.6
11.0 $ 8,479.4 $ 9,025.9 $ 9,472.8

Debt Outstanding $ 2,575.0 $ 2,375.0 $ 2,175.0

(We are assuming no cash add back) Equity Values

8.0 $ 3,591.9 $ 4,189.3 $ 4,714.3

9.0 $ 4,362.7 $ 5,009.8 $ 5,575.4
10.0 $ 5,133.6 $ 5,830.4 $ 6,436.6
11.0 $ 5,904.4 $ 6,650.9 $ 7,297.8

Annual Rate of Return

Initial Equity Investment $ 1,725.0 $ 1,725.0 $ 1,725.0

8.0 20.1% 19.4% 18.2%

9.0 26.1% 23.8% 21.6%
10.0 31.3% 27.6% 24.5%
11.0 36.0% 31.0% 27.2%

PE Exit Analysis
EXIT ANALYSIS
RPG Corp.
$ in millions

2023 2024 2025

Years Until Exit 4.0 5.0 6.0

Target Return 25.0% 25.0% 25.0%
Potential Management Interest 5.0% 5.0% 5.0%
EBITDA $ 770.9 $ 820.5 $ 861.2

Target Rate of Return Achieved?

8.0 No No No
9.0 Yes No No
10.0 Yes Yes No
11.0 Yes Yes Yes

Bain Ownership
8.0 100% 100% 100%
9.0 95% 100% 100%
10.0 95% 95% 100%
11.0 95% 95% 95%

Bain Equity Value

8.0 $ 3,591.9 $ 4,189.3 $ 4,714.3

9.0 $ 4,144.6 $ 5,009.8 $ 5,575.4
10.0 $ 4,876.9 $ 5,538.9 $ 6,436.6
11.0 $ 5,609.2 $ 6,318.4 $ 6,932.9

Bain Annual Rate of Return after Management Interest

8.0 20.1% 19.4% 18.2%

9.0 24.5% 23.8% 21.6%
10.0 29.7% 26.3% 24.5%
11.0 34.3% 29.6% 26.1%

PE Exit Analysis