Case - Please read the case Radnet, Inc.: An Acquisition.
Instructions:
Recommend which financing option they should take.
In the recommendations, please include the terms and size of each suggested tranche.
Support your recommendations with detailed spreadsheets that simulate the effects on debt service (and profitability) under the following scenarios:
- Expected or normal cash flows
- 5% decrease in cash flow
- 10% decrease in cash flow
Your discussion supporting or justifying your recommendation will include data generated by your spreadsheets as well as consideration of the key characteristics of debt financing you have proposed.
You may use doc format for the writing and import your spreadsheets. Make sure the spreadsheets are readable. Do not shrink them to fit. The report should look very professional. Guidance on Financing I am posting some guidance on case two RadNet.
This case is about structuring the financing. You do not need to change the FCF or value unless you really feel they missed something. You will need to construct a financing schedule. Determine a probable price. The case gives you a value. You are free to accept or to modify it.
You should now know how to do this. It starts with the enterprise value. If there is existing debt, one of the decisions you must make is whether to assume or pay if off with a new financing. Determine how much financing will be needed.
There is no single answer. It depends on how much equity (cash) you want to contribute. This is partially determined by your proposed financing mix. Determine the financing mix. Again, there is no single answer. In M&A we finance in tranches.
So take the total financing requirement and divide it into tranches. Tranches do not have to be equal in size. Each tranche has a cost. Each tranche will have different risk characteristics.
In other words, each tranche must be supported by certain level of debt paying capacity often identified by metrics such as EBITDA ratios. Each tranche typically has a certain type of debt.
It could be bank credit, subordinated bonds, mezzanine debt, etc. The idea is to generate an acceptable rate of return to each tranche yet leaving sufficient return to equity.
Often the return to equity occurs several years out. In fact, early tranches are paid off within a couple of years. Later tranches are paid off later or are considered permanent debt. There is no set algebraic formula that accomplishes this.
Remember this is a report to someone. You are making recommendations to someone. Resist the urge to merely throw spreadsheets at them.
Organize this into a report. There are several forms. You may want to begin with an executive summary, one page. Next, go into details of the financing, using spreadsheets as exhibits. This becomes the justification for your recommendations. Finally, the recommendation (which is like the conclusion). Composition is important. Someone not familiar with this case should be able to read your report and get a sense of what is going on.
Attachment:- RADNET INC.rar