It is March 2017, and you were recently hired as a financial analyst at the private equity group Silver Capital Partners. Your boss tells you that he has heard that the management of Panera Bread, a publicly traded chain store of bakery-café fast casual restaurants with over 1,000 locations, may be open to discussing a sale of the company. He then asks you to take a look at Panera’s 10-K for 2016 that was recently filed and prepare a financial analysis on the viability of a buyout of Panera.
Panera Bread 10-K:
https://www.sec.gov/Archives/edgar/data/724606/000072460617000004/a2016122710k.htm
Questions
1) Calculate Panera’s EBITDA for 2016.
2) Assuming that banks will provide senior debt amounts up to 5.0 times Panera’s 2016 EBITDA and specialized debt funds can provide subordinated debt of an additional 2.5 times EBITDA, how much debt could be borrowed for a buyout?
3) If senior debt will have an interest rate of 6.0% and subordinated debt 10.0%, what would the Company’s annual interest expense be after an acquisition?
4) If Silver Capital Partners wants to acquire all of Panera’s outstanding shares at a price of $300.00 per share and repay all of its current financial debt (see 10-K), based on your calculation above in Question 2, how much equity capital from them will be required for the transaction? (assume that the same price is paid for both Class A shares and Class B shares)
5) What multiple of Enterprise Value to EBITDA would such a transaction result in?
6) The average Enterprise Value to EBITDA multiple for twelve recent comparable acquisitions of restaurant chains is 13.8. What value per share would this multiple result in based on Panera’s 2016 EBITDA? (again assume that the same price is paid for both Class A shares and Class B shares)
7) After reviewing Wall Street equity research reports about Panera, you estimate that their average expectation is for Panera to increase its EBITDA by 12% per year for the next 5 years. Assuming that the company can be sold then at the same multiple you calculated for Question 5, what enterprise value and equity value would this result in (assuming no debt has been repaid and cash balance is zero)?
8) Estimate Panera’s cash position after 5 years by calculating free cash flow for each of the years. Assume a 30% tax rate, zero change in net working capital, no debt repayments, and $200 million in capital expenditures per year. Then adjust your calculation from Question 7 to reflect the accumulated cash.
9) Calculate an expected IRR for Silver Capital Partners’ potential acquisition of Panera Bread based on your answer to Question 8.
10) If the exit Enterprise Value to EBITDA multiple is instead 13.8, what IRR would this result in for Silver Capital Partners?