A private equity client is considering acquiring a utilities business in Europe at 15x EBITDA.
The target turns over €542 M, growing at 42% a year, at a 20% EBITDA margin. The underlying market is growing at about 18%.
Its largest customer is 29% of revenue; the top five are 44%. The average remaining contract term is 2 years.
The vendor's model assumes growth continues at the current rate for five years. Your client has four weeks and wants to know whether to proceed.
Advise the deal team. Your answer should provide:
State any assumptions you make.
80 points, 60% to pass.
Growth = market growth + share change. Test whether share gain is repeatable, then stress the multiple against concentration and contract cover.