Opus Group in an LBO Context

Miki Vinther & Jesper Ilsøe

Student thesis: Master thesis


The purpose of this thesis is to evaluate whether or not Opus Group is an attractive LBO-candidate. More specifically, this thesis seeks to determine how big a return a private equity sponsor is able to generate by doing a leveraged buyout on Opus Group. The motivation behind targeting Opus Group is primarily the steady industry as well as the significant fall in the share price over the past two years. The share price has fallen from SEK 14,80 in 2014 to SEK 3,96 per share on May 13 2016. This may indicate a potential return above the minimum requirement normally applied in leveraged buyouts. Opus Group is a Sweden-based company engaged in vehicle inspection services, such vehicle safety and environmental inspections, and was in late 2015 mentioned in relation to the Volkswagen scandal as they identified emission problems with the two-liter diesel vehicles. As a response, the Environmental Protection Agency (EPA) announces higher ozone standards in the United States and the outlook in the industry and the potential focus on vehicle inspections makes Opus Group a very interesting case to analyse deeper in a leveraged buyout context. To evaluate Opus Group as an LBO-candidate, the thesis will apply elements from corporate finance and valuation theory, such as a strategic analysis, a financial analysis, forecasting as well as a detailed valuation using both present value approached and relative valuations (multiples). Further, the thesis will seek to determine how the sources and uses in the leveraged buyout model can be constructed and what the implied purchase price premium in the model is. Our valuation models indicate a much higher implied share price compared to the current price traded on the exchange. More specifically, the valuation models summarized in a Football Field imply a valuation range between 5 and 11 SEK per share with the present value approaches and EV/Revenue and EV/EBITDA multiples implying a median value around 11 SEK per share, implying a 180 % premium to the current stock price. This underpins and confirm that Opus Group is currently undervalued in the market. By applying a leveraged buyout model on Opus Group, a private equity sponsor would pay 73,2 % in premium to acquire all shares in the company, generating a 22,9 % IRR in 2020 in our base case scenario, decreasing to towards 17,8 % in 2026. Compared to a 20,0 % return requirement, Opus Group is assessed to be an attractive candidate if the private equity sponsor exits the investment in 2021 at the latest. By testing the input variables in a sensitivity analysis, changes in five input variables could lead to IRR values below 20,0 % when exiting the investment in 2020. The changes were believed to be rather unlikely. However, the sensitivity analysis revealed that changes in the input variables influenced a lot on the implied IRR. The thesis concludes that Opus Group is an attractive LBO-candidate – but only in certain intervals and with certain underlying assumptions.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages200
SupervisorsSøren Plesner