LBO af H+H International A/S

Abstract

Over the last couple of years attempts to takeover the Danish listed aircrete company H+H International A/S have been made. The potential buyers were both private equity sponsors and strategic buyers. Until now these attempts have not resulted in actual takeovers, which underlines the relevance of analysing H+H International as a potential target for a Leveraged buyout (LBO). However, the company’s debt-equity ratio has increased over the last couple of years, and probably frightened away some private equity sponsors. From a learning perspective it is therefore interesting to analyse what the Internal Rate of Return (IRR) would be, when doing an LBO transaction on this specific company. Furthermore, it is interesting to investigate whether the calculated IRR would be satisfactory for a possible private equity sponsor. To examine this the company and the LBO process is briefly described. Secondly, the valuation models are theoretically analysed in order to justify the most suitable models for the various parts of this thesis. For the overall valuation analysis the Adjusted Present Value approach (APV) is preferred due to its flexibility with regard to debt in the forecast horizon. Furthermore, a liquidation model is used to estimate the amount of senior debt used in the takeover. Eventually, a valuation multiple is selected to determine the exit price, which makes it possible to calculate the IRR. All these models need both qualitative and quantitative inputs and value drivers, and therefore strategic and accounting tools are used to analyse the historic performance within these areas. All conclusions are then tested in a sensitivity analysis, to make sure that the results are valid. This thesis concludes that a private equity sponsor would achieve an IRR in the range of -0,35% to 30,10% depending on the timing of the exit, given the presented assumptions. This thesis reveals that a private equity sponsor would require a return around 20 %, which makes H+H International a very interesting case from a private equity sponsor’s point of view. However, this result is very sensitive to changes especially concerning the exit price, the revenue growth, the production costs, and the risk free rates applied to calculate the cost of capital.