A private equity client is considering acquiring a logistics business in Southeast Asia at 18x EBITDA.
The target turns over $141 M, growing at 26% a year, at a 27% EBITDA margin. The underlying market is growing at about 14%.
Its largest customer is 41% of revenue; the top five are 64%. 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.