Private Placements

On June 28, 2017 Sycamore Partners L.P. announced the agreement to purchase Staples Inc. for $6.9B (merger agreement). Sycamore offered a 22% premium over the SPLS share price as of March 27, 2017 prior to speculations of a buyout for $10.25. The deal was an all cash deal financed with debt including senior term loan, asset backed revolving credit facility, notes and a bridge loan. Sycamore, following a traditional private equity model, would seek to improve the operations, expanding Staples online presence. Upon the close of the merger Staples would carve out the US and Canadian Retail businesses into separate Sycamore affiliated entities. The carve-out transactions will be operated as separate independent Sycamore-affiliated entities.

Modelyze Investments has modelled this transaction considering the deal terms with quarterly potential exit dates over 2020/21 and presented the internal rate of returns for OPCO and HOLDCO investors and sensitivity of returns with respect to exit multiple of EBITDA. The model is subject to inputs and assumptions. Valuations of the company under the new management team assigned by Sycamore, value of control and sensitivity analysis of implied share price with respect to term year growth rate and cost of capital are provided and base, best and worst case sales and economic scenarios are further analyzed. Click here to view the model and investment thesis.

White Feather

SYCAMORE

PARTNERS

STAPLES

make more happen

On August 18, 2017 Calpine Corp. (NYSE: CPN), US largest generator of electricity from natural gas and geothermal resources, announced the definitive agreement to be acquired for US $5.6B in an all cash deal, an enterprise value of $17.1B, by a consortium comprised of Energy Capital Partners (ECP), Canadian Pension Plan Investment Board (CPPIB) and Access Industries (full story). The purchase price excludes the implied value of the common stock owned by Volt Energy. The offer price of $15.25 represents a 51% premium over the unaffected CPN share price of $10.07 as of May 9, 2017, the day prior to media speculation of a transaction. Volt Parent L.P., wholly owned and controlled by ECP and its consortium will fund 100% of the equity required to consummate the transaction.  Parent has obtained equity financing and certain debt financing commitments including revolver and a bridge loan facility to finance the transactions and pay related fees. ECP and other members of a consortium led by ECP have committed to provide capital to Parent with an aggregate equity contribution of approximately $5.187 billion (CPPIB: $900 MM, Access Industries: $1,800 MM, ECP: $2,487 MM). ECP, the leading private equity investor in North American power and infrastructure assets expects to make no changes to the way Calpine operates its business and intends to remain focused on providing the high level of service to wholesale and retail customers through capital infusion. ECP does not intend to change the company’s financial policy or previously announced $2.7B deleveraging plan and prudent balance sheet/cost management. The deal was closed on March 8, 2018 and CPN trading was suspended prior to the opening of NYSE on March 9, 2018.

Modelyze has modelled this transaction via a fully blown three statement financial model considering the deal terms, sources and uses of funds and Calpine historical performance. With quarterly potential exit dates as of 2023 onwards, Modelyze calculated the corresponding IRR’s of OPCO and HOLDCO for key investors: ECP, CPPIB and Access Industries. The model is subject to inputs and assumptions. Valuation and sensitivity analysis with respect to term year growth rate and cost of capital are presented and base, best and worst case scenarios for inflation and regional electricity and natural gas prices are provided. Click here to view the model and presentation.

Grey Limbo

CALPINE

Energy Capital

Partners

On May 13, 2019 Onex Corp. and WestJet Airlines Ltd. entered into a definitive agreement (“Arrangement Agreement”) for an all cash acquisition of WestJet, including its assumed debt in a friendly transaction. Onex through its affiliate, Kestrel Bidco Inc., will acquire all outstanding shares of WestJet for $31.00 per share, a 67% premium over its share price as of May 10, 2019 prior to the announcement date. The transaction is valued at $4.79 billion enterprise value ($3.605 billion equity value). Onex expects to finance the transaction through a combination of debt and equity (sponsor) financing including an unconditional letter from a large US financial institution to fund $3.25 billion of debt financing, the rollover of WestJet Encore's loans with Export Development Corporation, and the available cash on the balance sheet. Onex will keep Management on board via a rollover of their equity ownership for HOLDCO (Kestrel Bidco Inc.) shares (994,926 shares, which represented approximately 0.9% of the issued and outstanding shares on an undiluted basis). The deal is expected to close late 2019 or early 2020. If successfully completed, the deal will be the biggest private equity deal for an airline.

 

Modelyze Investments performed the financial due diligence on this recently announced transaction as of 2019 Q1, including the derivation and financial analysis of the offer price based on comparative analysis, financial analyses of WestJet’s historical performance and valuation risk and suitability of the company as a target of private placement, valuation of the firm from Onex perspective, and determination of IRR’s and cash-on-cash multiples for OpCo, Management and HOLDCO (Kestrel Bidco Inc.) investors through 2025 on a quarterly basis and subject to the assumptions. Sensitivity analysis of valuation with respect to term cost of capital and term growth rate and sensitivity analysis of IRR with respect to purchase and exit multiples as well as Best, Base and Worst Case for sales and economic scenarios are presented. Optimal leverage for maximization of HOLDCO returns upon exit is also determined. Click here to view the model and investment thesis.

Airplane Engine

WESTJET

The following is the analysis of Northland Power Inc. (“NPI” or “Northland Power” or “Company”) as a target of a private placement as of 2019 fiscal year end. The company and the transaction are analyzed from the perspective of three important pillars of a successful private placement: leverage, control and privatization.  A detailed financial model of Northland Power leverage buyout by a consortium of institutional investors in an all cash deal financed with sponsor’s equity and different tranches of debt including asset backed revolver, mezzanine debt and other is presented in the investment thesis. As Northland Power is a fairly well-run business, management stays on board, holding roughly 5.6% of common equity post transaction.

 

Scenarios for best, base and worst case inflation, delivered gas cost and heat rate inputs, credit statistics and covenants over the forecast period up to 2035, IRR of the deal, cash on cash return and value added for potential exit dates from 2027 to 2035 are analyzed in the model and the investment thesis. Refinancing of senior term debt at 5th and 10th year mark and a dividend recapitalization schedule is further built into the model and the analysis. Pre transaction relative valuation, post transaction intrinsic valuation, and sensitivity analysis with respect to deal terms and term year discount rates and growth are performed and presented. Click here to view the model and investment thesis.

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