Case study
Jordan Cement
An exercise in leveraged finance modelling

Prof. Ian Giddy, New York University

The Proposal

Jordan CementSamer Biriqadar, the owner of Jordan Cement, wants to sell his family's company for $19 million. He is prepared to offer a vendor note at 10% p.a. for up to $2 million of the financing. A preliminary agreement for the sale has been reached between the Biriqadar family and the sponsors of the acquisition, an Egyptian construction company called Orascom and a European development bank. Together with management, the sponsors are able to contribute equity capital totalling $5.5 million. Their challenge is to raise the remainder of the financing. Other details are as follows:

Balance sheet 2005 (US$ millions)

Assets Cash 0.5


Inventory 1

PP&E 6.5

Liabilities A/P 1.5

LT Debt 1


Income Statement 2005

20   growing at 12% p.a.

Cost of Goods Sold 16 80% of sales

2 10% of sales

Depreciation 1


Net interest expense 0.6

Tax  35% 0.14

Net Income 0.26

Proposed Financing

Sr debt
12 8.50%
 with 7 yr amortization
Mezz debt 3 13%  plus warrants for 2% of equity
Equity Orascom 2

Dev Bank 2   Exit in 5 years at 7xEBIDTA-Net Debt
  Management 1.5


Additional constraints:
Sr. debt/EBITDA: Max 2.5x
Total debt/EBITDA: Max 5x
EBITDA/Sr. interest: Min 3x
EBITDA/Total interest: Min  2x
Capex: 2% of sales
Min cash balance: $0.5 million

1. Use the Jordan LBO Model spreadsheet to model the cash flows, valuation and rates of return in this proposed deal
2. Does the deal work for all the parties?
3. Is there a role for mezzanine finance? If mezzanine investors expect a total return of 17.5%, how can that be achieved?
4. What rate of return can the lenders, the equity partners, and other investors expect to earn? | | | | contact
Copyright ©2007 Ian Giddy. All rights reserved.