Search Fund Financial Models (PDF)

Exhibit 12 – Sample Search Fund Financial Models

STRUCTURE A - Operating Case: Optimistic Case
Year 0
Revenues
Revenue Growth
EBITDA Margin
EBITDA
Less: Depreciation & Amortization
Less: Interest Expense
Earnings Before Taxes
Taxes @ 40%
Net Income

Closing
$15,000

Year 1
$17,250
15.0%

Year 2
$19,838
15.0%

Year 3
$22,813
15.0%

Year 4
$26,235
15.0%

Year 5
$30,170
15.0%

20.0%
$3,000

20.5%
$3,536

21.0%
$4,166

21.5%
$4,905

22.0%
$5,772

22.5%
$6,788

($500)

($575)
($192)
$2,770

($661)
($82)
$3,423

($760)
($10)
$4,134

($875)
$ -$4,897

($1,006)
$ -$5,783

($1,108)
$1,662

($1,369)
$2,054

($1,654)
$2,481

($1,959)
$2,938

($2,313)
$3,470

$3,536
($192)
($1,108)
($450)
($575)
($300)
$912
$912

$4,166
($82)
($1,369)
($518)
($661)
($300)
$1,236
$2,148

$4,905
($10)
($1,654)
($595)
($760)
($252)
$1,634
$3,782

$5,772
$ -($1,959)
($684)
($875)
$ -$2,254
$6,036

$6,788
$ -($2,313)
($787)
($1,006)
$ -$2,683
$8,718

40.0%

Free Cash Flow
EBITDA
Less: Cash Interst Expense
Less: Cash Taxes
Less: Changes in NWC @ 20% of Rev Growth
Less: CapEx
Less: Mandatory Debt Paydown
Free Cash Flow for Voluntary Debt Paydown
Cumulative FCF
Capital Structure
Cash

$ --

$ --

$ --

$ --

$ --

$ --

Senior Debt
Seller Financing
Total Debt

3,000
4,500
$7,500

1,788
4,950
$6,738

252
5,445
$5,697

4,356
$4,356

2,538
$2,538

109
$109

6,450
$13,950

7,095
$13,833
$1,095

7,805
$13,501
$1,205

8,585
$12,941
$1,325

9,443
$11,981
$1,294

10,388
$10,497
$1,198

Investor Capital - Redeemable Preferred Stock
Investor Capital - Non-Redeemable Preferred Stock
Total Capitalization (excl. Common Stock)
Seller Financing + Investor Capital Accretion
Exit Valuation
EBITDA
Valuation Multiple
TEV

$6,788
5.0x
$33,942

Less: Net Total Debt
Total Equity Value

$109
$33,833

Less: Value to Redeemable Pfd Stock
Less: Value to Non-Redeemable Pfd Stock
Value to Common Equity

$ -$10,388
$23,445

1

STRUCTURE A - Operating Case: Base Case

2

STRUCTURE A - Operating Case: Pessimistic Case

Year 0
Revenues
Revenue Growth
EBITDA Margin
EBITDA
Less: Depreciation & Amortization
Less: Interest Expense
Earnings Before Taxes
Taxes @ 40%
Net Income

Closing
$15,000

Year 1
$15,000
--

Year 2
$15,000
--

Year 3
$15,000
--

Year 4
$15,000
--

Year 5
$15,000
--

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

($500)

($500)
($184)
$2,316

($500)
($71)
$2,429

($500)
($6)
$2,494

($500)
$ -$2,500

($500)
$ -$2,500

($926)
$1,389

($972)
$1,458

($998)
$1,496

($1,000)
$1,500

($1,000)
$1,500

$3,000
($184)
($926)
$ -($500)
($300)
$1,089
$1,089

$3,000
($71)
($972)
$ -($500)
($300)
$1,158
$2,247

$3,000
($6)
($998)
$ -($500)
($153)
$1,343
$3,590

$3,000
$ -($1,000)
$ -($500)
$ -$1,500
$5,090

$3,000
$ -($1,000)
$ -($500)
$ -$1,500
$6,590

40.0%

Free Cash Flow
EBITDA
Less: Cash Interst Expense
Less: Cash Taxes
Less: Changes in NWC @ 20% of Rev Growth
Less: CapEx
Less: Mandatory Debt Paydown
Free Cash Flow for Voluntary Debt Paydown
Cumulative FCF
Capital Structure
Cash

$ --

$ --

$ --

$ --

$ --

$ --

Senior Debt
Seller Financing
Total Debt

3,000
4,500
$7,500

1,611
4,950
$6,561

153
5,445
$5,598

4,646
$4,646

3,611
$3,611

2,472
$2,472

6,450
$13,950

7,095
$13,656
$1,095

7,805
$13,402
$1,205

8,585
$13,231
$1,325

9,443
$13,054
$1,323

10,388
$12,860
$1,305

Investor Capital - Redeemable Preferred Stock
Investor Capital - Non-Redeemable Preferred Stock
Total Capitalization (excl. Common Stock)
Seller Financing + Investor Capital Accretion
Exit Valuation
EBITDA
Valuation Multiple
TEV

$3,000
4.0x
$12,000

Less: Net Total Debt
Total Equity Value

$2,472
$9,528

Less: Value to Redeemable Pfd Stock
Less: Value to Non-Redeemable Pfd Stock
Value to Common Equity

$ -$9,528
$ --

3

STRUCTURE B - Operating Case: Optimistic Case
Year 0
Revenues
Revenue Growth
EBITDA Margin
EBITDA
Less: Depreciation & Amortization
Less: Interest Expense
Earnings Before Taxes
Taxes @ 40%
Net Income

Closing
$15,000

Year 1
$17,250
15.0%

Year 2
$19,838
15.0%

Year 3
$22,813
15.0%

Year 4
$26,235
15.0%

Year 5
$30,170
15.0%

20.0%
$3,000

20.5%
$3,536

21.0%
$4,166

21.5%
$4,905

22.0%
$5,772

22.5%
$6,788

($500)

($575)
($192)
$2,770

($661)
($82)
$3,423

($760)
($10)
$4,134

($875)
$ -$4,897

($1,006)
$ -$5,783

($1,108)
$1,662

($1,369)
$2,054

($1,654)
$2,481

($1,959)
$2,938

($2,313)
$3,470

$3,536
($192)
($1,108)
($450)
($575)
($300)
$912
$912

$4,166
($82)
($1,369)
($518)
($661)
($300)
$1,236
$2,148

$4,905
($10)
($1,654)
($595)
($760)
($252)
$1,634
$3,782

$5,772
$ -($1,959)
($684)
($875)
$ -$2,254
$6,036

$6,788
$ -($2,313)
($787)
($1,006)
$ -$2,683
$8,718

40.0%

Free Cash Flow
EBITDA
Less: Cash Interst Expense
Less: Cash Taxes
Less: Changes in NWC @ 20% of Rev Growth
Less: CapEx
Less: Mandatory Debt Paydown
Free Cash Flow for Voluntary Debt Paydown
Cumulative FCF
Capital Structure
Cash

$ --

$ --

$ --

$ --

$ --

$ --

Senior Debt
Seller Financing
Total Debt

3,000
4,500
$7,500

1,788
4,950
$6,738
3,773
3,225
$13,736
$998

252
5,445
$5,697
4,415
3,225
$13,337
$1,136

5,990
$5,990

6,588
$6,588

6,762
$6,762

3,532
3,225
$12,746
$1,295

1,878
3,225
$11,691
$1,199

3,225
$9,987
$978

Investor Capital - Subordinated Debt
Investor Capital - Non-Redeemable Preferred Stock
Total Capitalization (excl. Common Stock)
Seller Financing + Investor Capital Accretion

3,225
3,225
$13,950

Exit Valuation
EBITDA
Valuation Multiple
TEV

$6,788
5.0x
$33,942

Less: Net Total Debt
Total Equity Value

$6,762
$27,180

Less: Value to Subordinated Debt
Less: Value to Non-Redeemable Pfd Stock
Value to Common Equity

$ -$3,225
$23,955

4

STRUCTURE B - Operating Case: Base Case
Year 0
Revenues
Revenue Growth
EBITDA Margin
EBITDA
Less: Depreciation & Amortization
Less: Interest Expense
Earnings Before Taxes
Taxes @ 40%
Net Income

Closing
$15,000

Year 1
$15,750
5.0%

Year 2
$16,538
5.0%

Year 3
$17,364
5.0%

Year 4
$18,233
5.0%

Year 5
$19,144
5.0%

20.0%
$3,000

20.3%
$3,189

20.5%
$3,390

20.8%
$3,603

21.0%
$3,829

21.3%
$4,068

($500)

($525)
($187)
$2,478

($551)
($73)
$2,766

($579)
($6)
$3,018

($608)
$ -$3,221

($638)
$ -$3,430

($991)
$1,487

($1,106)
$1,660

($1,207)
$1,811

($1,288)
$1,933

($1,372)
$2,058

$3,189
($187)
($991)
($150)
($525)
($300)
$1,037
$1,037

$3,390
($73)
($1,106)
($158)
($551)
($300)
$1,202
$2,239

$3,603
($6)
($1,207)
($165)
($579)
($161)
$1,484
$3,723

$3,829
$ -($1,288)
($174)
($608)
$ -$1,759
$5,482

$4,068
$ -($1,372)
($182)
($638)
$ -$1,876
$7,358

40.0%

Free Cash Flow
EBITDA
Less: Cash Interst Expense
Less: Cash Taxes
Less: Changes in NWC @ 20% of Rev Growth
Less: CapEx
Less: Mandatory Debt Paydown
Free Cash Flow for Voluntary Debt Paydown
Cumulative FCF
Capital Structure
Cash

$ --

$ --

$ --

$ --

$ --

$ --

Senior Debt
Seller Financing
Total Debt

3,000
4,500
$7,500

1,663
4,950
$6,613
3,773
3,225
$13,612
$998

161
5,445
$5,606
4,415
3,225
$13,246
$1,136

5,990
$5,990

6,588
$6,588

7,247
$7,247

3,681
3,225
$12,896
$1,295

2,548
3,225
$12,361
$1,225

1,105
3,225
$11,578
$1,092

Investor Capital - Subordinated Debt
Investor Capital - Non-Redeemable Preferred Stock
Total Capitalization (excl. Common Stock)
Seller Financing + Investor Capital Accretion

3,225
3,225
$13,950

Exit Valuation
EBITDA
Valuation Multiple
TEV

$4,068
4.5x
$18,307

Less: Net Total Debt
Total Equity Value

$7,247
$11,059

Less: Value to Subordinated Debt
Less: Value to Non-Redeemable Pfd Stock
Value to Common Equity

$1,105
$3,225
$6,729

5

STRUCTURE B - Operating Case: Pessimistic Case
Year 0
Revenues
Revenue Growth
EBITDA Margin
EBITDA
Less: Depreciation & Amortization
Less: Interest Expense
Earnings Before Taxes
Taxes @ 40%
Net Income

Closing
$15,000

Year 1
$15,000
--

Year 2
$15,000
--

Year 3
$15,000
--

Year 4
$15,000
--

Year 5
$15,000
--

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

20.0%
$3,000

($500)

($500)
($184)
$2,316

($500)
($71)
$2,429

($500)
($6)
$2,494

($500)
$ -$2,500

($500)
$ -$2,500

($926)
$1,389

($972)
$1,458

($998)
$1,496

($1,000)
$1,500

($1,000)
$1,500

$3,000
($184)
($926)
$ -($500)
($300)
$1,089
$1,089

$3,000
($71)
($972)
$ -($500)
($300)
$1,158
$2,247

$3,000
($6)
($998)
$ -($500)
($153)
$1,343
$3,590

$3,000
$ -($1,000)
$ -($500)
$ -$1,500
$5,090

$3,000
$ -($1,000)
$ -($500)
$ -$1,500
$6,590

40.0%

Free Cash Flow
EBITDA
Less: Cash Interst Expense
Less: Cash Taxes
Less: Changes in NWC @ 20% of Rev Growth
Less: CapEx
Less: Mandatory Debt Paydown
Free Cash Flow for Voluntary Debt Paydown
Cumulative FCF
Capital Structure
Cash

$ --

$ --

$ --

$ --

$ --

$ --

Senior Debt
Seller Financing
Total Debt

3,000
4,500
$7,500

1,611
4,950
$6,561
3,773
3,225
$13,559
$998

153
5,445
$5,598
4,415
3,225
$13,238
$1,136

5,990
$5,990

6,588
$6,588

7,247
$7,247

3,822
3,225
$13,036
$1,295

2,972
3,225
$12,785
$1,249

1,977
3,225
$12,449
$1,164

Investor Capital - Subordinated Debt
Investor Capital - Non-Redeemable Preferred Stock
Total Capitalization (excl. Common Stock)
Seller Financing + Investor Capital Accretion

3,225
3,225
$13,950

Exit Valuation
EBITDA
Valuation Multiple
TEV

$3,000
4.0x
$12,000

Less: Net Total Debt
Total Equity Value

$7,247
$4,753

Less: Value to Subordinated Debt
Less: Value to Non-Redeemable Pfd Stock
Value to Common Equity

$1,977
$2,776
$ --

6