John Case Co- Valuation

John M Case Company

Determining Total Enterprise Value and structuring a deal to buy the John M Case

Company

Executive Summary:

In order to maintain current level of autonomy over operations, career continuity, as well as further their plan

of growing the company through diversification, the management team of the John Case Company, led by

Anthony Johnson, were justified to buy the company from John M Case, president and sole owner of the

company. Analyzing the present value of the future cash flows of the company the firm value is estimated to be

$22.492 million, and therefore the asking price of $20 million is justified. The management team can structure

a winning deal to buy the company using bank loans, Mr. Case’s sellers’ coupon & VC loan. To provide a 20%

return for the VC, the firm must payout $12.809 million using warrants and short term loan. However, a

sensitivity analysis on the VC’s required rate of return shows that a 25% rate of return would require the firm

to payout $23.608 million, which is close to the 90% value of the firm (Exhibit 10). Therefore, we expect the VC

to exercise a high level of monitoring and control, should they decide to give the entire $ 6 million loan.

Key assumptions for the recommendation:

1. A marginal tax rate is estimated using the regression on the relationship between Profit before tax and tax.

The regression result is used for estimating taxes on NOPAT from 1985-1992. For 1993, as tax shields in Puerto

Rico are lifted, the tax rate is assumed to be 35%.

2. Forecasts for 1991-1993 are done predominately by assuming most costs as a % of sales. Detailed

description for forecasting each line item and associated drivers is provided in the Analysis section.

3. The loan amount payable to the VC post 5 years is assumed to have no discount factor schedule.

4. All remaining cash flows in the year 1991-1993 are used to pay-off the VC money, and in the last year of the

VC’s payment, the warrants are...