BWIP Case Harvard Case Solution & Analysis

BW / IP International

Evaluate the LBO of BW / IP in 1987 as a private equity sponsor with the assumption that the UCP acquisition would be executed in 1988 under the terms specified in the case.  In other words, you will need to consolidate the financials of BW / IP and UCP from 1988 onward, and use the consolidated data to evaluate the original LBO of BW / IP.

1)      Develop a financing plan for the deal and a Capitalization Table showing how you would satisfy all financing needs of this deal.  The financial model in Course Documents à Excel Templates à LBO Model - Completed.xls and LBO Model – Shell.xls should be utilized to help you develop this financing plan.  Conceptually, please consider the following questions for guidance as you are developing the financing plan:

  1. How would you structure the deal in various debt and equity securities?
  2. What price and structure/securities would you seek during negotiations for your investment proposal?
  3. What terms need to be included to give management proper incentives?
  4. Are there other measures that need to be taken relative to management given the company’s circumstances?

2)      Excel sheet(s) containing your valuation of the company and required investment based on APV, Probability-Adjusted APV, and Blended Capital and Comparable methodologies for the point of view of each stakeholder of this deal.

3)      Table of Returns and Matrix of IRRs and Cash-on-Cash (CoC) for each stakeholder in this deal based on your financing plan in (3)


A leverage buyout is a system used to acquire another company with heavy reliance on debt, amount borrowed through bonds or loans for the company to be able to raise enough finance to meet the cost. The uniqueness of this option is that the assets of the acquirer company are used as collaterals against the loans taken, this option a widely used for acquisition purposes mainly because it allows companies to make acquisition with having to invest a high amount of capital.

BWIP values the company at $18.5million and is the amount is will to pay, the company wishes to raise $13m in debt and wants to contribute the remaining $5.5m from equity. It is assumed that the company will take a loan of $13m from the bank at an interest rate of 6%, while holding the company’s assets on leverage, all the working has been done according this assumption.

Adjusted present value analysis was conducted on the consolidated income statement of BWIP and UCP which gave a value of $1m, the assumptions taken to be able to conduct this value are, the growth rate for the calculation of the terminal value is assumed to be 3%, the beta asset of the company was not provided nor any data was given to be able to calculate its value, hence it was assumed to be 0.8 with the help of which the cost of equity was calculated.

A combined value of $1m through the APV analysis clearly indicates this acquisition is not viable for the company, the company would not even be able to repay its debts with this acquisition.

Under the NPV analysis of UCP with an investment amount considering to be $18.5m, expected returns taken from 88 to 93 along with terminal value, with 3% considered as growth rate, the NPV stands at negative $12.4million making this not a viable investment.

The return analysis shows a similar situation with the implied enterprise value at EBITDA multiples taken on 0.3x, 1.3x and..............

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