Dupont Corporations Case Study Solution
Dollar increase in DPC’s Value
Considering the given 3 scenarios separately, Enterprise Value of DPC under part a, b and c is $4859, $4169 and $4179 respectively. It can be seen from Exhibit B that, the DPC value would increase by 22% with a 5% growth in EBITDA and 12% growth in EBIT. (See Exhibit B)
Maximum Enterprise Value Offered for DPC
IF PE considers an IRR of 20% it could offer a maximum enterprise value of $3234 and $4361 under part a. and b. respectively. The price under part b. with leverage is however higher than the standalone value projected by the company i.e. $3970. However, the price with no leverage is lower than the estimated price.(See Exhibit C)
Minimum Bid Price for DPC
The minimum bid price for DPC should not be less than the estimated standalone enterprise value $3970, as lower price would reduce the shareholder’s value which the company cannot afford. The offered price if the PE choose to finance the purchase using debt is higher than the minimum bid price showing a positive point for DuPont.
Exhibits
Exhibit-A: Analysis of DPC for Potential Buyers
| DPC Analysis For Potential Buyers | |
| Favourable | Unfavourable |
| · High performance liquid and powder coatings
· Diverse customer categories · Growth in emerging markets · Better competitive position. · Utilization of buyout funds.
|
· Decline in sales of auto sector.
· Increase in prices of key inputs constituting 50%. · Customer Demands for Technological advancement. · High Variable Costs. · Strong Competition · Decline in Refinishing due to low rates of collision · Low GDP growth 1-2% · Environmental Compliance Costs
|
Exhibit-B: Increase in DCP Value
| Summary sources of deal value (dollars in millions). | |||||||||||||
| Enterprise | Increase | % of Total | |||||||||||
| Value | in Value | Increase | |||||||||||
| Enterprise Value of Standalone | 3,970 | ||||||||||||
| Plus: | |||||||||||||
| part a. | EBITDA Growth | 4859 | 889 | 22% | |||||||||
| part b. | Multiple Arbitrage (7.5× 2017 E EBITDA) | 4169 | $ 199 | 5% | |||||||||
| part c. | Leverage (6.0× 2012 E EBITDA) | ||||||||||||
| 4179 | $ 209 | 5% | |||||||||||
| Total Dollar Increase in Value | 100% | ||||||||||||
Exhibit C: DCP Enterprise Value at 20% IRR
| PE Firm’s Valuation of DPC | ||||||||||
| Target rate | 20% | |||||||||
| part b. EBITDA Growth and Multiple Arbitrage | ||||||||||
| Closing | 2012 E | 2013 E | 2014 E | 2015 E | 2016 E | |||||
| RCFs = FCFs | $ | 372 | 387 | 401 | 412 | 433 | ||||
| Equity TV = Enterprise Value | 5102 | |||||||||
| Total CFs to Equity | 372 | 387 | 401 | 412 | 5535 | |||||
| Maximum LBO Equity Contribution | $ 3,234 | |||||||||
| Add: Net Debt (no excess cash) | $ - | |||||||||
| Implied Enterprise Value for DPC | $ 3,234 | |||||||||
| PE Firm’s Valuation of DPC | ||||||||||
| Target rate | 20% | |||||||||
| part c. EBITDA Growth, Multiple Arbitrage, and Leverage | ||||||||||
| Closing | 2012 E | 2013 E | 2014 E | 2015 E | 2016 E | |||||
| RCFs (used to pay off debt) | $3,926 | 174 | 197 | 221 | 243 | 276 | ||||
| Enterprise Value | $5,350 | |||||||||
| Equity Terminal TV | Debt Balance at 2016 | 2,816 | ||||||||
| Total CFs to Equity | 174 | 197 | 221 | 243 | $2,534 | |||||
| Maximum LBO Equity Contribution | $ 1,545 | |||||||||
| Add: Net Debt (no excess cash) | 2,816 | |||||||||
| Implied Enterprise Value for DPC | $ 4,361 | |||||||||
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