Developing M&A model for FTSE-250 target company

Developing M&A model for FTSE-250 target company

manufacturing1 - Developing M&A model for FTSE-250 target company

Synopsis

We were engaged by a financial consultancy to develop a financial model for their private equity client to support the acquisition of a FTSE-250 manufacturer and wholesaler with operations across the globe.

This assisted the private equity firm to negotiate the sale of the company.  The model was used to run projections based on management plans, and stress test against various scenarios, including changes in sales growth worldwide and in new markets and products, change in raw material prices and foreign exchange.

Screenshots

Model features

  • separate P&L’s for each market (country) and market profiles to reflect local sales and cost growth and profiles, each denominated in domestic currency
  • model  the manufacturing and sourcing of raw materials, production, and 10 international wholesale markets.
  • developing SKU profiles for over 100 product lines including seasonality (sales were highly seasonal with demand peaking in winter)
  • reflect existing hedging arrangements for Raw Material purchases
  • debtors, creditors and WIP by market
  • tiered debt financing and headroom report
  • multiple reports including by SKU and by market
  • conversion of the model for management to use as an ongoing budgeting took, automated to pull through data from reports for quarterly refresh
  • full sensitivity analysis for key factor movement including FX, raw material prices (there was some unhedged exposure)

Outcomes

The model was reviewed and approved by the private equity firm and used for the basis of the sale negotiations.  The model was used to run projections based on management plans, and stress test against various scenarios.  Key exposures included sales growth and new market take-up, as well as changes in raw material prices (they had some unhedged exposure) as well as foreign exchange for purchase of raw materials which was purchased in USD.

The client was impressed that the model was sufficiently dynamic to reflect the time lag between profit and cash flow due to the seasonality of their products.  This meant that cash could be reliably stress tested against lending covenants when sales dropped after the off peak season.