The Carlyle Group and Axalta Case Study Solution
Value of Axalta after 18 Months of Buyout:
The value of Axalta has increased dramatically after 18 months of its buyout, because the decisions they have taken or the strategies that they have applied, have turned out to be unexpectedly better, not only in the form of an increase, but also in the demand for its product offerings, which are growing faster than they were predicted to be, but the investment bankers of the unit have reported that the overall market condition has improved in this sector, which pushed Axalta to enter into an Initial Public Offering (IPO).
Consideration of an IPO:
As known that the product offerings are growing faster than predicted, and the investment bankers of the unit have reported that the overall market condition have improved in this sector, are the main causes to enter in an Initial Public Offering (IPO). EBITDA has grown faster in the comparison of projection at the time of acquisition. It is now expected that the coating industry will grow more and became much stronger than prior. The major competitors of Axalta have increased their EBITDA to 12.4 times from 8.3 times after putting their feet into the non-core divisions and coating businesses.
Therefore, Carlyle contacted to its financial consultants about Axalta. Every undertaking bank contrasted and responded in an increasingly critical way to the company, they additionally varied in their appraisal of Axalta’s worth. The primer financier investigation esteemed Axalta’s value at IPO in a range somewhere between $5.3 and $6.6 billion, which is an amazing increment over the underlying of $1.35 billion value speculation. These investigations proposed that an IPO would be an extraordinary chance to secure the investment. In the temporary mix of the exchange size, the imminence of antitrust concerns, and the diversions of a couple of potential bidders recommended that the enthusiasm for an exchange deal would be restricted.
In general, there are many different ways and transactions to exit from an investment, which are:
- Initial Public Offering. (IPO)
- Strategic Acquisition.
- Management Buyouts.
Simultaneously, Carlyle has realized that the full impact of the presentation improvement plan at this point was to show up and build valuations considerably. Since the significant dangers were relieved; the news for Axalta was probably going to be great. By offering a considerable square of value to external financial specialists before these achievements were completely noticeable. Financiers commonly apply a 10% to 15% rebate to an offer cost in an IPO in order to guarantee the speculators’ enthusiasm for the venture and to prop up the exchanging volume.
IRR of Carlyle Investment:
The IRR of Carlyle is 24%, which is calculated by deducting the capital expenditure, taxes, and changes in the working capital from EBITDA in order to find the net cash flows. In the net cash flows, I have added the IPO generated cash flows in each year, because these cash flows are generated by selling the partial earnings of its initial investment.
Exhibit 1: IRR Calculation of Carlyle Investment
| 2014 | 2015 | 2016 | 2017 | ||
| Adjusted EBITDA | $ 821.0 | $ 908.0 | $ 977.0 | $ 1,047.0 | |
| EBITDA multiple | $ 10.4 | $ 10.4 | $ 10.4 | $ 10.4 | |
| Enterprise Value | $ 8,538.4 | $ 9,443.2 | $ 10,160.8 | $ 10,888.8 | |
| IPO price | $ 1,601.0 | $ 1,770.6 | $ 1,905.2 | $ 2,041.7 | |
| Working Capital | $ 285.5 | $ 297.6 | $ 311.4 | $ 324.8 | |
| Change in WC | $ (9.1) | $ (12.1) | $ (13.9) | $ (13.4) | |
| EBIT | $ 1,121.0 | $ 1,208.0 | $ 1,277.0 | $ 1,347.0 | |
| Total Debt | $ 3,712.0 | $ 1,815.1 | $ (281.6) | $ – | |
| Interest Rate | 5.4% | 5.4% | 5.4% | 5.4% | |
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Adjusted EBITDA | $ 821.0 | $ 908.0 | $ 977.0 | $ 1,047.0 | |
| Less CAP | $ 166.0 | $ 150.0 | $ 150.0 | $ 125.0 | |
| Less Interest | $ 200.4 | $ 98.0 | $ (15.2) | $ – | |
| Less tax | $ 368.2 | $ 444.0 | $ 516.9 | $ 538.8 | |
| less Change in WC | $ (9.1) | $ (12.1) | $ (13.9) | $ (13.4) | |
| Net Cash Flows | $ (4,900.0) | $ 295.9 | $ 326.1 | $ 324.0 | $ 396.6 |
| Total Cash Flows | $ (4,900.0) | $ 1,822.9 | $ 2,015.2 | $ 2,148.1 | $ 2,339.1 |
| IRR | 24% | ||||
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