LBO Case Study - Volta Electronics Co. - v3
LBO Case Study - Volta Electronics Co. - v3
LBO Case Study - Volta Electronics Co. - v3
Case Study
The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Table of Contents
03 Introduction
04 Executive Summary
05 Company Overview
05 - The Company
09 Appendices
09 - Appendix 1: Income Statement
10 - Appendix 2: Balance Sheet
11 - Appendix 3: Cash Flow Statement
12 - Appendix 4: Accessible Debt and Repayment Schedules
13 - Appendix 5: Supplemental Revenue and Income Information
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Introduction
The purpose of the case is to provide you with a data-set to create your financial
model, value the company, and make an investment recommendation to the partners
at a private equity firm.
In completing this case, you will practice and improve your financial modeling
skills and demonstrate your ability to make sound financial assumptions based on
contextual information and the company’s financial state.
External sources of information may be used to supplement your analysis but is not
required for the completion of this case.
We hope this case provides you with a unique learning experience and helps you
sharpen your financial modeling skills.
Good luck!
Tim Vipond
Chief Executive Officer
Corporate Finance Institute®
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Executive Summary
Instructions for the You are a financial analyst at the private equity firm, Kronos Capital, which
Case Study invests in high growth companies with an expected internal rate of return (IRR)
of 30% or more. In this case study, you will be evaluating a potential leveraged
buyout (LBO) transaction. Kronos Capital is considering acquiring 100% of a
private company, Volta Electronics Co.
Your task is to create a financial model and determine the value of the company.
You will need to determine the maximum price that Kronos Capital can offer in
this acquisition to satisfy the minimum expected IRR of 30%.
To approach this case, you will need to assess the company’s financial
statements and use information provided by management to come up with a set
of assumptions. You will then need to complete parts of the provided LBO model
and use these assumptions to value the company and identify the maximum
price per share that Kronos Capital should offer.
The date of this transaction for IRR calculation purposes is June 30th, 2018.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Company Overview
Volta is a well diversified company with several product lines that target multiple
consumer segments. The company’s products also exist within several price
ranges, allowing them to maximize their reach.
Volta seeks to stand out by developing top-of-the-line quality products that are
distinguished from their competitors. Volta’s products are Energy Star certified.
The Company also actively aims to attain certifications for their product lines
whenever relevant, such as the THX certification for their home audio products.
Additionally, Volta has been making investments towards higher margin revenue
streams. While the Company has already produced computer accessories,
such as keyboards, mice, and computer speakers – computer peripherals,
Volta is now exploring products targeting the gaming industry. Volta has
already established an infrastructure producing computer peripherals. By now
transitioning into the gaming peripherals market, Volta will be able to minimize
capital investment costs due to their established infrastructure, while still
tapping into a higher margin revenue stream.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Volta Electronics Co. The gaming peripherals market is comparatively more open to premium
computer peripheral products. This allows manufacturers to charge a higher
markup on their products. Volta is aiming to capture a significant portion of
this market by partnering with influencers, esports organizations, and game
production studios. As Volta’s brand is defined by their high performance and
their modern designs, a gaming focused product line will not be a departure
from Volta’s brand offering.
Volta’s products have a global reach. Volta has relationships with distributors,
wholesalers, and retailers in North America, Western Europe, and Asia. The
Company’s products can be easily identified and found in department stores,
appliance stores, electronics shops, and other similar stores. Volta also sells
directly to consumers through ecommerce channels on their website.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Management’s Discussion
& Analysis
Management’s analysis
Revenue Growth
of the company’s future
prospects and financial With continuous expansion in our markets and product lines, as well as our
entry into the gaming peripherals market, we expect our revenue to increasingly
performance.
grow throughout the years. We expect the revenue growth rate to continue to
accelerate equal to the average percentage change of revenue growth rates
from 2014 to 2017.
We expect cost of goods sold to continue to decrease for the rest of 2018 by the
historical average change in cost of goods sold as a percentage of revenue from
2014 to 2017 before adjustments. By taking the pre-adjustment average, we
believe this will account for any potential future non-recurring expenses. After
this, we predict that cost of goods sold will remain as a constant proportion of
revenue.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Management’s analysis
Non-recurring Expenses
of the company’s future
prospects and financial Supply chain issues caused our Company to seek additional suppliers for raw
materials at a slightly increased cost. This resulted in an additional expense of
performance.
$725,000. We have since solved these issues and we expect our raw materials
costs to return to normal for 2018.
Capital Assets
Due to streamlining efforts and technological advancements resulting
in increased production efficiency, we will be able to reduce our capital
expenditures in 2018 by half of the historical proportional amount.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Appendices
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Assets
Cash 37,309 49,219 62,196 76,504
Accounts Receivable 3,871 4,076 4,296 4,537
Inventory 7,129 7,467 7,799 8,175
Current Assets 48,309 60,761 74,291 89,216
Property & Equipment 32,598 32,799 33,267 33,988
Goodwill - - - -
Total Assets 80,908 93,560 107,558 123,204
Liabilities
Short Term Debt - - - -
Accounts Payable 4,977 5,213 5,444 5,707
Current Liabilities 4,977 5,213 5,444 5,707
Long Term Debt 8,622 7,544 6,467 5,389
Total Liabilities 13,599 12,757 11,911 11,096
Shareholder’s Equity
Equity Capital 46,453 46,453 46,453 46,453
Retained Earnings 20,855 34,350 49,194 65,655
Shareholder’s Equity 67,308 80,803 95,647 112,108
Total Liabilities & Shareholder’s Equity 80,908 93,560 107,558 123,204
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
Term loan 1 and term loan 2 share the same level of debt seniority. Excess cash used to repay debt must be applied
to both term loan 1 and term loan 2 equally.
The maximum amount of total debt that can be approved is up to 4.0x EBITDA.
The maximum amount for each type of debt that can be approved is as follows:
Type Amount
Line of Credit Up to 0.40x EBITDA
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The Corporate Finance Institute LBO Case Study – Volta Electronics Co.
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