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Print outs - 2. Entrepreneurs users of PE1.pdf
Print_outs_-_2._Entrepreneurs___users_of_PE1.pdf
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Print_outs_-_2._Entrepreneurs___users_of_PE1.pdf-Summary: Entrepreneurs / Users of Private
Print outs - 2. Entrepreneurs use...
Print_outs_-_2._Entrepreneurs___users_of_PE1.pdf-Summary: Entrepreneurs / Users of Private
Page 5
OUTSIDE
-
IMPACIS;
3
r
(S)Strategy.
-
ls
strategy
consistent
with opportunity,
uncertainty,
team,
and
exit?
r
(l)
lnvestment
Requirements.
r
(D)
Deal.
-
Does deal
structure
provide
appropriate
incentives?
,
ls the
deal
priced
attractively?
u
Do
key
individuals
have
incentives to do deal?
u
Do
key
individuals
have
incentives
to
make
dealwork?
-
Does deal
structure
provide
appropriate
governance?
*
Does deal
structure
help
manage
the
uncertainties?
r
(E)
Exit.
Can
you
exit
the
deal?
How?
r
lf
an
investment
does
not
pass
the
OUTSIDE
tests,
leave
it
outside.
EntrepErcùdalFiMrceandPdvaleEqùity
I
StevonN
Kaplan
Evaluating
a
Busrness
Plan
/
Opportunity
QuantitativelY:
r
Very difficult
in
entrepreneurial
situations.
r
Does not mean
you
shouldn't
do
it.
r
Pro
formas
as
good
as
its assumptions.
slewn
N.
Kåplan
Page 6
Look
at
two
valuation
methods:
r
DCF.
r
Multiple-based.
EnlrePrcneùial
Fimrce
åtrd
Private Equity
11
St€wn
N, Keplan
DCF:
r
Generate
free
cash
flows
to
all-equity
firm:
*
EBITx
(
1
-T
)
+
Depr&Amort-
CAPX
-
Ch. NWC
r
For
start-ups:
-
Generate
different
scenarios.
o
Expect
substantial
non-linearities.
(1.e.,
0
or
1.)
*
Assign
probabilities
to the
different
scenarios.
-
Value
company
as expected value
of
different
scenarios.
r
For
existing
companies:
-
OK to
generate
different
scenarios.
-
However,
one
set
ofexpected
cash
flows
often
represent
expected
value
of different
scenarios.
-
Less
likely
to have
non-linearities
/
options.
Er!Æ!E!9!¡!lF¡mm9
md Pdvate
Eqùity
'12
Slewn
N. Kâplan
Page 7
Example:
Free
Cash
Flows
and
Terminal
Values
Year
O
Year
1
Year
2
$1,103
Year
3
$1,
1
54
($116)
($58)
Glzei
$34a
@12C)t
$228
(s91)
$l
37
$344
l$
I
39)
$209
$1
73
(914O)
llÞ6)
$236
$1,276
l$sj.gi
$766
lç1213)
($64)
{sJ
201
$245
($94)
$147
Yeal
4
Year
5
ReEnues
cost
of Sales
Gross
Proñt
Selling Expense
Administrati€
Expense
Depræ¡ation
EBIT
!!!ereÞLE:Eer'
EBT
fax
@
4oo/o
EAT
/
Net lncome
EBIT
Tax
on
EBIT
@
4O"/"
EBITX
(
1-T)
Deprec¡at¡on
-
Capital Expend¡ture
-
lnc.
Net
\
/orkino Capital
Free
cash
Flow
Temi
nal
V
alue
(R=
1
Oõ/o,
9=
2o/õ
)
Free
cash
Flow
Discounted
@1O9lo
Present
Value of Free
cash
Flow
Present Value
of Term¡nal
Value
Totâl
F¡m
Value
Entßprcneùriâl
Fimrce
ild
Private
Eqùity
$1
,
OOO
Jí*ç'.9)
$600
($
1o0)
(s5o)
fsl-gÐ
$32O
(s1?ç)
$200
{$ão)
$120
$
l,o50
J-g*æ)
$630
(s
1
05)
($53)
fsL?.Ð
$33O
($1
2Q)
$21
0
$r,216
rç*cÐ
$730
(s
1
22)
($61)
f$l-ge)
$357
ß441\
(S4€3)
$662
$695
(s
1
1o)
($5s)
ßt9z)
$339
(ç1ZA)
$219
s?*Ð
$365
(.s1?Q)
$237
tþ3l-)
GCË)
$l
26
$1
31
($95)
$142
$330
191
32ì
$l
9a
$143
($l
1o)
lrå51
$226
$205
$339
Itj
l3Êl
$2o3
$l
57
\fi120)
lrå6ì
$235
$357
l$143)
$214
$1
90
(s1
so)
(lÞ61
$24A
$365
($
146)
$21
9
$209
($165)
($rj)
$257
$3,280
$1e4
$'t77
$170
$9O6
$2.O37
ç2,942
$160
stevsn
N
Kaplan
Needed
target
IRR
and
Cash-on-Cash
for
given
probability
of
successful
exit.
Target Return
and Target Cash-on-Cash
CAPM Cost of Capital
Value.Added
Premium
%
Tru€ Target Return /
cost of
Cap¡ta
'lo,oo/r
o,oo/o
10.0%
Cash_on_Cash
=
[(l+Target)^N
/
p
]
IRR
=
-l
+
lcash.on-Cashl^(1/N)
Yeaß
to
Ex¡t
2
247,9%
12.1
3
'l37.Oo/o
13,3
4
95.6%
14.6
74.3%
l6.l
6
91,50/o
17,7
40%
450/0
73.9%
64.0o/o
3.0
2,7
49,3y.
43.50/0
3,3
3.0
38.3%
U3%
3.7
3.3
32.10/"
29.Oo/o
4.0
3.6
28,10/.
25.70/0
4,4
3.9
25,4Vo
23.3%
4.9
4.3
1OV6
35%
85.9%
3.5
56.'l%
3.8
so%
55.6%
2.4
38.6%
2.7
30.8%
2,9
26.4%
3.2
23,5o/o
3.5
21.4o/o
3.9
Estimated
Probabillty
of
Successful
Exit
15V.
2oo/o
25o/o
3oo/o
184.oo/o
146.0"/"
12O,O%
1OO,ïY,
8.1
G,1
4.8
4.O
1OI.OV,
8ø.1%
74.60/o
Ê4,3%
8.9
6.7
5.3
4.4
76.80/o
64.50/.
55.6%
48,6%
9.8
7.3
5.9
4.9
60.8%
51.8o/o
45.1'/o
39.9%
10.7
8.1
6.4
5,4
50.9% 43.9.h
38.6%
34.4%
11.8
8.9
7.1
5.9
44.20/.
38,4% U.loh
30.60/0
13.0
9.7
7.8
6.5
43.Oo/o
4.2
35.7%
46
31.00/.
5.1
27.8V.
5,6
7
S2.Ao/o
19.5
Enrreprereuri¿i
FiMrce
æd P¡ivalc
Equity
14
Sbwn
N
Kâplan
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