Private Equity Case Study
Email includes the following attachments:
- Zuora Street Estimates (excel)
- Zuora 10K from FY 2020 (pdf)
- Zuora Earnings Release from FY 2021 (pdf)
- Please review the attached information on Zuora (NYSE:ZUO) and prepare an analysis discussing the merits and risks/considerations of a potential take-private transaction from the perspective of a tech-focused private equity firm. The analysis should take you between 2-3 hours to complete (please do not spend additional time on the case).
Prepare a brief (5 slide max) presentation of your analysis addressing the following:
- Recommendation on whether you would like to invest or not including an analysis of the deal merits and risks/considerations
- Valuation and structure for the deal and potential returns assuming a 5 year hold
- Key questions that would need to be addressed in further due diligence on the opportunity
- Transaction close date of 1/31/2021; ZUO closing share price of $14.75/sh.
- Debt amounting to 1x 1/31/2021 LTM
- Subscription Revenue is available at a 10% PIK interest rate
- Existing shareholders will rollover 25% of their equity in the transaction
- Street consensus estimates for forward financials has been provided for reference; please make your own assumptions regarding 5 year forecast model
Some modeling tests will not provide detailed assumptions for calculating NWC entry; multiple calculation; leverage calculation; What to do with existing debt (refinance / roll); Debt tenor. In these cases, it is best to be familiar with commonly used approaches: NWC can most easily be calculated as a % of Revenue, or based on the above; Entry multiple is usually calculated using NTM EBITDA; Leverage is usually calculated using LTM EBITDA; Existing debt on the balance sheet is usually paid off in full; Common debt tenor is 7 years.