Acova Radiateurs Case Study

• Read Section 6.5 in the Chacko book on Flow to Equity. Then read the case "Acova Radiateurs" answer the following questions.

o Is Acova a good candidate for an LBO? Why or why not?

Yes Acova is a good candidate for an LBO as it got a track record of profit and revenue grow for the past 5 years and Acova had over 75% share at the France market and 80% at the Beigium market.

o Many economists are predicting a recession in the near future. What evidence, if any, do you see in the case for this prediction?

There is no evidence in the case shown any recession in the near future

o Redo the design of the Acova buyout assuming a recession is expected to occur and sales are expected to decrease by 2% in 1991 and stay flat (0% growth) in 1992.

 Will the proposed debt structure and schedule for the buyout still work in this scenario? If not, design a new one.

It will not work as it require less capital as recession happens as the value of Acova will decrease.

The value of Acova should be below 340 Million FFR assuming sales decreased by 2% and 0% growth in 1992

Assume the LBO lowered to 310 Million due to recession

 Will the proposed equity split with management and mezzanine debt holders still work in this scenario? If not, design a new one.

It will require lower debt ratio as it will require less cash for the LBO.

 Using the debt structure/schedule and equity allocations that you decided on in the previous questions, calculate the maximum price BCI can offer for Acova and still achieve its targeted 30-35% return. What will management's return be at this price? What will the mezzanine debt holder's total return be at this price?

With the new calculation the maximum price BCI can offer for Acova and still achive 30-35% return.

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