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You’re the director of new business acquisitions at Pearl’s Famous Jam, Inc. and you’ve received a preliminary ‘tickler’ from an investment banker regarding a target company represented by the investment banker. It asks whether you’re interested and, if so, includes a Non-Disclosure Agreement (“NDA”) that you can sign and return. Once received, you’ll be given a detailed Confidential Information Memorandum (“CIM”). The company may be of interest to Pearl’s Famous Jam, Inc. because it is a leader in a new, fast growing category in your industry, which otherwise is somewhat mature. The preliminary document includes the following summary of recent and projected financial performance:
The document also mentions that all manufacturing is conducted at a single facility, which is currently operating at 90% of capacity. As you review the document and make some preliminary calculations, a number of questions come to mind that you hope are answered to your satisfaction in the CIM, which of course you’ll want to see. What are those questions and what observations or analysis caused them to arise? |
Q1) Why EBITDA margin has remained at 20.0% for last three years ?
The reason behind these question is when sale increase in first three years the EBITDA margin changed but in latest years it is not happening. From year three to year six sales has increased by 60% but EBITDA margin didn't go up
Q2) Sales growth is very high, what is the reason behind this and is it achievable ?
Calculations
| Sales | 4000 | 6000 | 10000 | 14000 | 16000 |
| Sales growth | 50% | 67% | 40% | 14% | |
| EBITDA margin | 10% | 15% | 20% | 20% | 20% |
| EBITDA | 400 | 900 | 2000 | 2800 | 3200 |
| FCFF | 100 | 700 | 1800 | 2500 | 3000 |
You’re the director of new business acquisitions at Pearl’s Famous Jam, Inc. and you’ve received a...