What are the pros and cons of Carter’s as an acquisition target for a private equity firm? Is it an opportunity that you would pursue if you worked at Berkshire?

LBO and Carter

1. What are the pros and cons of Carter’s as an acquisition target for a private equity firm? Is it an opportunity that you would pursue if you worked at Berkshire?

2. Attached find an LBO model template. Do the following:

• Set your excel to iterate calculations (Options > Formulas > Tick the Iterate Calculations box)
• Input summary projections for Carter’s, as per the case (Revenues, EBIT, D&A, Change in Working Capital, and Capital Expenditures in rows 6-16)
• Input a financing structure, using Goldman Sachs’ proposed staple financing in the case (assume that only $17.5 million of the Revolver is drawn down at closing) and related interest costs (cells F53, F54, and F55 – back into the implied multiples of debt/EBITDA based on the absolute numbers provided in the case)
• Input a purchase price (T5)
• Input an exit multiple (cell P33)
• Through trial and error, find a purchase price that leads to an IRR of 25% assuming an exit in 2005 (see row 42)
• Post your implied purchase price and discuss your willingness to buy Carter’s at this level.