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Unlike discounted cash flow models, leveraged buyout (LBO) model

a financial investor who acquires a company, recapitalizes ist financi


increase profitability and capital efficiency. We used Continental AG
analysts value potential LBO candidates. While it is entirely possible
and restucture automotive assets, we have no knowledge that Conti
equity investor. The purpose of this example is solely to demonstrate
situation.

LBO models are based on a number of subjective assumptions, inclu


- Transaction details (control premium),
- Financial structure (leverage / cost of debt),
- Operational assumptions,
- Debt schedule (use of free cash flows and length of interim period)
- Final cash flows and exit multiple.

In this Excel file we demonstrate how financial analysts calculate inte


candidates. The assumptions and the valuation of Continental AG ar
Valuation: Models from Leading Investment Banks.

This spreadsheet is for educational purposes only. Please do not ma


models provided in this Excel spreadsheet.

Transaction details
Transaction Date
Shares outstanding, m
Current price,
Premium
Price,
m
Equity value
Net Debt(Cash)
Pension Provision
Buyout Minorities
Fees (1.5%)
Enterprise Value
Non Core/Peripheral assets
Core EV
Fees & expenses

31-Dec-06
145.5
87.00
20%
104.40
15,185
927
1,111
221
228
17,671
-127
17,544
1.5%

Valuation(LBO)
EV/Sales
EV(Core)/EBITDA
EV(Core)/EBITA
PER
FCF yield

aluation(LBO)

V(Core)/EBITDA
V(Core)/EBITA

2006
#VALUE!
#VALUE!
#VALUE!
0.6x
0.0%

2007
#VALUE!
#VALUE!
#VALUE!
0.6x
0.0%

Financing structure
Debt %
Equity %
Debt
Equity
Total

58%
42%
#VALUE!
#VALUE!
#VALUE!

Implied Debt burden


Total net debt
Net debt/EBITDA 2006E
Senior debt/EBITDA 2006E
EBITDA interest cover 2006E
Fixed charge cover 2006E

58%
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Debt split
Bank debt A
Bank debt B
Bank debt C
High Yield
Mezzanine
Total

Split
#VALUE!
#VALUE!
#VALUE!
10.0%
#VALUE!
100.0%

m
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Rate
3.8%
6.1%
6.6%
7.1%
8.5%
12.0%

Spread

Cost m

225bp
275bp
325bp

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Interest Cost
Euribor
Bank debt A
Bank debt B
Bank debt C
High Yield
Mezzanine
Total
Average cost of debt

Disposals
Basis
Business A
EBITDA
Business B
Book Value
Peripheral assets
Total
% used to pay down debt
50%
% distributed to equity
50%

Metric '07 Multiple '07


0
0.0x
0
0.0x

Value
0
0
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Absolute levels of debt


1.5
3,714
2.5
6,190
3.5
8,666
4.5
11,142

P&L m
Gross Sales
% change in Revenue
EBIT-Margin
EBIT
Depreciation
Depreciation as % of sales
EBITDA Margin
EBITDA
EBIT
Margin
Net profit
FCF
Net Debt

2005
13,837
11.2%
1,545
742
5.4%
17%
2,287
1,545
11.2%
1,008
624
523

2006
14,709
6.3%
11.7%
1,716
760
5.2%
17%
2,476
1,716
11.7%
1,141
737
865.22

2007
15,721
6.9%
11.4%
1,794
800
5.1%
16%
2,594
1,794
11.4%
1,200
1,011
-82.58

2008
16,350
4.0%
11.0%
1,798
899
5.5%
17%
2,698
1,798
11.0%
1,239
1,107
-1,190

2009
17,004
4.0%
11.0%
1,870
935
5.5%
17%
2,806
1,870
11.0%
1,330
1,195
-2,385

Cash flow m
EBITDA
Capex
Capex as a % of sales
NWC
Interest
Tax
Restructuring Costs
FCF

2005
2,287
-872
6.3%
-185
-104
-432
-69
624

2006
2,476
-890
6.1%
-200
-86
-489
-74
737

2007
2,594
-890
5.7%
-20
-80
-514
-79
1,011

2008
2,698
-899
5.5%
-50
-28
-531
-82
1,107

2009
2,806
-935
5.5%
-50
29
-570
-85
1,195

Cash conversion
EBITDA % of net
EBITA % of net
FCF / EBITDA
Capex/Depreciation

2005
227%
153%
27%
118%

2006
217%
150%
30%
117%

2007
216%
150%
39%
111%

2008
218%
145%
41%
100%

2009
211%
141%
43%
100%

[In EUR million]


EBITDA
Capex
NWC
Tax
Restructuring cost
FCF
Disposals
Interest
Cash for debt reduction
Tax (%)
Debt Pay-down m
Bank debt A
Bank debt B
Bank debt C
High Yield
Mezzanine
Total
% of opening debt repaid
Net debt/EBITDA

2005
2,287
-872
-185
-432
-69
728
0
-104
624
30%

2006
2,476
-890
-200
-489
-74
823
0
-86
737
30%

2007
2,594
-890
-20
#VALUE!
-79
#VALUE!
#VALUE!
#VALUE!
#VALUE!
30%
2007
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2008
2,698
-899
-50
#VALUE!
-82
#VALUE!
0
#VALUE!
#VALUE!
30%
2008
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2009
2,806
-935
-50
#VALUE!
-85
#VALUE!
0
#VALUE!
#VALUE!
30%
2009
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

% of senior debt repaid

#VALUE!

#VALUE!

#VALUE!

2010
17,684
4.0%
11.0%
1,945
973
5.5%
17%
2,918
1,945
11.0%
1,426
1,287
-3,672

2011
18,126
2.5%
11.0%
1,994
997
5.5%
17%
2,991
1,994
11.0%
1,507
1,396
-5,068

2012
18,579
2.5%
11.0%
2,044
1,022
5.5%
17%
3,066
2,044
11.0%
1,592
1,479
-6,547

2013
19,044
2.5%
11.0%
2,095
1,047
5.5%
17%
3,142
2,095
11.0%
1,681
1,566
-8,113

2014
19,520
2.5%
11.0%
2,147
1,074
5.5%
17%
3,221
2,147
11.0%
1,774
1,656
-9,769

2015
20,008
2.5%
11.0%
2,201
1,000
5.0%
16%
3,201
2,201
11.0%
1,869
1,649
-11,418

2010
2,918
-973
5.5%
-50
91
-611
-88
1,287

2011
2,991
-997
5.5%
-20
159
-646
-91
1,396

2012
3,066
-1,022
5.5%
-20
230
-682
-93
1,479

2013
3,142
-1,047
5.5%
-20
306
-720
-95
1,566

2014
3,221
-1,074
5.5%
-20
387
-760
-98
1,656

2015
3,201
-1,100
5.5%
-20
470
-801
-100
1,649

2010
205%
136%
44%
100%

2011
199%
132%
47%
100%

2012
193%
128%
48%
100%

2013
187%
125%
50%
100%

2014
182%
121%
51%
100%

2015
171%
118%
52%
110%

2010
2,918
-973
-50
#VALUE!
-88
#VALUE!
0
#VALUE!
#VALUE!
30%
2010
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2011
2,991
-997
-20
#VALUE!
-91
#VALUE!
0
#VALUE!
#VALUE!
30%
2011
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2012
3,066
-1,022
-20
#VALUE!
-93
#VALUE!
0
#VALUE!
#VALUE!
30%
2012
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2013
3,142
-1,047
-20
#VALUE!
-95
#VALUE!
0
#VALUE!
#VALUE!
30%
2013
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2014
3,221
-1,074
-20
#VALUE!
-98
#VALUE!
0
#VALUE!
#VALUE!
30%
2014
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2015
3,201
-1,100
-20
#VALUE!
-100
#VALUE!
0
#VALUE!
#VALUE!
30%
2015
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

Cash flow available for debt repayment


Interest Schedule

Bank Debt Ordinary BF


Repayment
Bank Debt Ordinary CF
Interest

#VALUE!
6.05%

Cash flow available post repayment of Bank Debt ordinary


Bank Debt + 100bps BF
Repayment
Bank Debt + 100bps CF
Interest

#VALUE!
6.55%

Cash flow available post repayment of Bank Debt + 100bps


Bank debt + 250bps BF
Repayment
Bank debt + 250bps CF
Interest

#VALUE!
7.05%

Cash flow available post repayment of Bank Debt + 250bps


High Yield BF
Repayment
High Yield CF
Interest

#VALUE!
8.50%

Cash flow available post repayment of High Yield


Mezzanine
Repayment
Mezzanine
Interest

Cash flow available post repayment of Mezzanine

#VALUE!
12.00%

2005
624

2006
737

2007
#VALUE!

2005

2006

2007

#VALUE!
0
#VALUE!
0

#VALUE!
0
#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!

624

737

#VALUE!

#VALUE!
0
#VALUE!
0

#VALUE!
0
#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!

623.6

737.4

#VALUE!

#VALUE!
0
#VALUE!
0

#VALUE!
0
#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!

624

737

#VALUE!

#VALUE!
0
#VALUE!
0

#VALUE!
0
#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!

624

737

#VALUE!

#VALUE!
0
#VALUE!
0

#VALUE!
0
#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!

624

737

#VALUE!

2008
#VALUE!

2009
#VALUE!

2010
#VALUE!

2011
2012
2013
2014
2015
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

2008

2009

2010

#VALUE!
#VALUE!
#VALUE!
#VALUE!

2,403
#VALUE!
#VALUE!
#VALUE!

1,658
#VALUE!
#VALUE!
#VALUE!

832
0
0
0 #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!


#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!


#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!


#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!


#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
#VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

2011

2012

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

2013

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

2014

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

2015

#VALUE!

#VALUE!

#VALUE!

#VALUE!

#VALUE!

2006
Transaction multiple (x)
EV
Opening debt
Pay-down
Closing debt
Exit equity
Proceeds from disposal
Flows to equity
2007 exit
2008 exit
2009 exit
2010 exit
2011 exit
2012 exit
IRRs

2007

2008

2009

2010

17,245
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

17,937
#VALUE!
#VALUE!
#VALUE!
#VALUE!

18,655
#VALUE!
#VALUE!
#VALUE!
#VALUE!

19,401
#VALUE!
#VALUE!
#VALUE!
#VALUE!

6.6

Transaction multiple (x)


EV
Opening debt
Pay-down
Closing debt
Exit equity
Proceeds from disposal
Flows to equity
2007 exit
2008 exit
2009 exit
2010 exit
2011 exit
2012 exit
IRRs

7.1

Transaction multiple (x)


EV
Opening debt
Pay-down
Closing debt
Exit equity
Proceeds from disposal
Flows to equity
2007 exit
2008 exit
2009 exit
2010 exit
2011 exit

7.6

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
0
0
0
0
#VALUE!

#VALUE!
0
0
0
#VALUE!

#VALUE!
0
0
#VALUE!

2006

2007

2008

2009

2010

18,542
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

19,286
#VALUE!
#VALUE!
#VALUE!
#VALUE!

20,057
#VALUE!
#VALUE!
#VALUE!
#VALUE!

20,860
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
0
0
0
0
#VALUE!

#VALUE!
0
0
0
#VALUE!

#VALUE!
0
0
#VALUE!

2006

2007

2008

2009

2010

19,838
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

20,635
#VALUE!
#VALUE!
#VALUE!
#VALUE!

21,460
#VALUE!
#VALUE!
#VALUE!
#VALUE!

22,319
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
0
0
0

#VALUE!
0
0

#VALUE!
0

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

2012 exit
IRRs

#VALUE!

#VALUE!
#VALUE!

0
#VALUE!

0
#VALUE!

0
#VALUE!

2011

2012

2013

19,886
#VALUE!
#VALUE!
#VALUE!
#VALUE!

20,383
#VALUE!
#VALUE!
#VALUE!
#VALUE!

20,893
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
0
#VALUE!

#VALUE!
#VALUE!

2011

2012

2013

21,381
#VALUE!
#VALUE!
#VALUE!
#VALUE!

21,916
#VALUE!
#VALUE!
#VALUE!
#VALUE!

22,464
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!
0
#VALUE!

#VALUE!
#VALUE!

2011

2012

2013

22,877
#VALUE!
#VALUE!
#VALUE!
#VALUE!

23,449
#VALUE!
#VALUE!
#VALUE!
#VALUE!

24,035
#VALUE!
#VALUE!
#VALUE!
#VALUE!

#VALUE!

0
#VALUE!

#VALUE!
#VALUE!

IRR matrix
Exit multiple EV/EBITDA (x)
0.0x
0.0x
0.0x

2009
0.0%
0.0%
0.0%

2010
0.0%
0.0%
0.0%

2011
0.0%
0.0%
0.0%

IRR sensitivity to proportions of Debt consideration and premium paid


(Exit year , Exit multiple 0x )
Premium
0
0
0
0
0
0.0%
10%
15.0%
20.0%
25.0%
30.0%
#REF!
20.7%
18.5%
16.3%
14.2%
12.1%
#REF!
19.5%
17.5%
15.5%
13.6%
11.7%
#REF!
17.3%
15.6%
14.0%
12.4%
10.9%

2012
0.0%
0.0%
0.0%