PE Associate Recruiting

Modeling Test

Given the excel template, the assumptions below and the provided information
package:

1. What are the IRR and Multiple of Invested Capital (“MOIC”) of the
transaction at an entry valuation of 9.0x 2010 EBITDA assuming a 5-year
exit (at the end of 2015)? Please provide relevant sensitivity tables.

2. How much does the management team stand to make from management
options at exit?

3. What is the 2010 entry EBITDA multiple that you can pay for the
business and achieve a 25% IRR assuming a 5-year exit at 8.0x LTM
EBITDA?

**Make assumptions for all information not provided**

Note: Yellow-shaded cells should serve as clues for entering formulas/data

Information Provided
 Income Statement template with designated area for assumptions/drivers
 Opening and closing Balance Sheet template
 Balance Sheet template with designated area for net working capital
assumptions/drivers
 Cash Flow template with designated area for capital expenditures
assumption/driver
 Debt schedule sheet with leverage assumptions

Provided Assumptions
 Transaction Closes 12/31/10
 All existing debt is refinanced at the time of the transaction
 Model deferred financing fees and transaction expenses
 Schedule of financing fees provided in tab titled “Debt”
 Amortize deferred financing fees over 15 years
 Other non-deferred transaction expenses of $20 million
 Intangible asset write-up constitutes 20% of allocable excess purchase price
and should be amortized over 10 years
 Financing assumption: 5.0x 2010 EBITDA (See table with detailed
assumptions on tab titled “Debt”)
 No refinancing during holding period
 1.0% mandatory annual amortization on the Term Loan
  Calculate interest expense based on the average balance at the beginning
and end of the period (except for PIK accrual on mezzanine debt which
should be calculated based on the beginning balance)
 No repayment of the mezzanine debt
 Sweep all excess cash flow to pay down the revolver and Term Loan in
that order
 Assume management participates in 10.0% of the equity value over 1.0x
sponsor MOIC (i.e. cost basis of original sponsor investment)
 Assume interest income is earned on the average cash balance each year at a
rate of 2%
 Assume minimum operating cash balance of $25 million

What you should include in your model (no specific order of completion):
 “Cover” tab
 Name
 Date
 Answers to Questions 1-3
 “S&U” tab
 Sources and uses of funds for the transaction
 Purchase price calculation
 Exit multiple assumption
 IRR & MOIC sensitivity tables: entry multiple vs. exit multiple
 Supporting calculations for the answer to Question 3
 “Closing BS” tab
 Appropriate transaction adjustments to arrive at BS pro forma for the
transaction
 Calculation of goodwill
 “IS” tab
 All Income Statement assumptions/drivers
 2011E-2015E Income Statement projections
 “BS” tab
 Working Capital assumptions/drivers (assume projected working capital
ratios equal to levels in 2010)
 2011E-2015E Balance Sheet projections
 “CFS” tab
 Capex assumptions
 2011E-2015E Cash Flow Statement projections
 “Debt” tab
 Full debt schedule with paydown/amortization as applicable