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BBVA Recruiting - Case Study 2022
BBVA Recruiting - Case Study 2022
Process - Case
Study
Presentation
Advisory
Investment Banking & Finance
January 2022
Selection Process – Case study presentation
Our client is analyzing the potential acquisition of 100% of shares in “Target”. Target
manufactures textiles in the Mexico and sells them both in Mexico, US, and Europe. The
company had revenues in 2020 of USD 500 Mn, gross margin of 30%, selling, general and
administrative expenses of 10% of sales, depreciation of USD 70 Mn, and pays local taxes at a
corporate rate of 30%.
Target had the following accounts on its balance sheet as of December 31, 2020:
Additionally, the company obtained a new long-term financial debt, considering the following
assumptions:
o Principal: USD 500 Mn
o Interest rate: 4.50% + 450 bps
o Term: 10 years (until 2030)
o Amortization calendar: 10% per year
Our client has hired BBVA as its sole financial advisor and we came up with a set of trading
comps and precedent transaction multiples, both between 7.0x - 7.5x EBITDA LTM.
Through research reports and due diligence, we believe that Target's sales will grow at an
annual rate of 5% during the next five years and its EBITDA margin will improve 3.5% in total
over the next five years gradually, through manufacturing efficiencies that will be implemented
after the acquisition closes. The Company will have to invest heavily in equipment the first year
to implement these efficiencies:
• Year 1 capex: 10% of sales of year 1, invested in day 1 after the acquisition (assume the
acquisition closes December 31, 2021)
Working capital assumptions are expected to remain unchanged based on the latest data that
we have on the Company.
Note:
• 100% inventories correspond to raw materials and not to finished products
• Accounts receivable assumptions remain unchanged throughout the 5 years
• Accounts payable and other current liabilities correspond to COGS and SG&A,
respectively
• Our client has a policy of making distributions for 100% of the available cash (both for
dividends and any other type of payout).
Instructions:
1. Based on the information above, please project three financial statements (Balance
Sheet, Income Statement, Cash Flow Statement), and a financial model you would
normally use for the Target. Bear in mind that modelling (structure, formulas, format,
excel proficiency) and the results themselves will both be evaluated.
2. Using a 12.00% cost of equity and a perpetuity growth rate of 3.50%, is the DCF
valuation (with a valuation date of December 31, 2021) within, below or above the
valuation range from the precedent transactions and trading comps multiples?
3. Prepare a power point presentation simulating a pitch book that includes at least the
following:
• 1 slide in which you describe 3 investment highlights (important attractive
characteristics of the Target). You can make up the highlights and shall describe
them deeply.
• 1 slide with charts and analysis of the historical and forecasted business plan:
revenue, EBITDA, debt and free cash flow
• 1 slide with a football field summarizing your results and highlighting the main
assumptions for the valuation. A valuation recommendation and advisory for the
client shall be included at the end.
Please provide your model and pitch book in English at no later than Sunday 23 @23:59 hrs.
Presentation will be in Spanish.