LBO and Carter
1. What are the pros and cons of Carter’s as an acquisition target for a private equity firm? Is it an opportunity that you would pursue if you worked at Berkshire?
2. Find an LBO model template. Do the following:
Set your excel to iterate calculations (Options > Formulas > Tick the Iterate Calculations box)
Input summary projections for Carter’s, as per the case (Revenues, EBIT, D&A, Change in Working Capital, and Capital Expenditures in rows 6-16)
Input a financing structure, using Goldman Sachs’ proposed staple financing in the case (assume that only $17.5 million of the Revolver is drawn down at closing) and related interest costs (cells F53, F54, and F55 – back into the implied multiples of debt/EBITDA based on the absolute numbers provided in the case)
Input a purchase price (T5)
Input an exit multiple (cell P33)
Through trial and error, find a purchase price that leads to an IRR of 25% assuming an exit in 2005 (see row 42)
Post your implied purchase price and discuss your willingness to buy Carter’s at this level.
