Uncommon Brian Carlson Would Need

Uncommon Brian Carlson would need to provide $10 million in seller financing. This comes from $45 purchase price less $5 million cash/equity from the management team, $20 million subordinated note from the LBO group, and $10 million in senior secured note from the merchant bank. The warrant is not included as at this point it has not been exercised. Since the warrant exercise is optional, those funds cannot be assured, and therefore are not included in this calculation. There are $45 million in LBO proceeds, less debt. The debt at this point is $10 million.

Payables will also need to be covered, at $7.25 million. Transaction costs are ignored for this discussion, as they are not mentioned in the case. This leaves $27.75 million remaining for the shareholders. The cap table prior to the LBO is as follows: Share Owner Paid 20% First Coast (Series B) $3.00 million 43% Golden Eagle (Series A) $7.00 million 30% Brian Carlson $200,000 7% Management Thus, the dollar breakdown will be as follows: Owner Share Formula Cash Paid First Coast 20% (.2)(27.75) $5.55 million Golden Eagle 43% (.43)(27.75) $11.9325 million B. Carlson 30% (.3)(27.75) $8.325 million Management 7% (.07)(27.75) $1.9425 million C.

Brian is slated to receive $8.325 million from the transaction. The note he is taking back is for $10 million. Given this, Brian will not receive cash. D. To calculate Brian's rate of return, the value of the cash flows from the deal would need to be known. This can then be examined using the IRR function. If Brian receives payment on his note, he will receive the following: 10,000,000 10% 4 Year 1 2 3 4 Interest 1,000,000 784,529 547,511 286,792 Principle 2,154,708 2,370,179 2,607,197 2,867,916 Remaining 7,845,292 5,475,113 2,867,916 Total pmt 3154708 3,154,708 3,154,708 3,154,708 Sum pmt 12618832 Thus, Brian will receive $12,618,832 over the life of the deal, including interest.

The IRR of these flows is 19%, given he is only putting up the $8.325 million from his equity holding. E. For their investment, the Series A investors will receive a total of $11.9325 million, for a $7 million investment on 1/1/04. The Series B. investors will receive a total of $5.55 million for their investment of $3 million on 1/1/08.

The spreadsheet to calculate the XIRR of these owners is as follows: XIRR 1/1/2004 1/1/2008 12/31/2009 Class A 9.29% -7,000,000 0 11,932,500 Class B 36.01% 0 -3,000,000 5,550,000 The Class B shareholders have a higher IRR because they were able to buy in at a relatively low price,.