Valuing Nimbus Health: A Five-Year DCF
A private equity client is considering acquiring Nimbus Health, a digital health business in US. You have been asked to build the valuation case.
The company generated $486 M of revenue last year at an EBIT margin of 25%. Management projects revenue growth of 12% per year for five years, after which the business is expected to settle into mature, GDP-like growth.
Capital expenditure runs at 8% of revenue and depreciation & amortisation at 3%. Changes in net working capital consume roughly 3% of incremental revenue. The effective tax rate is 29%.
The company's equity beta is 1.37, the risk-free rate is 4.1%, and the equity risk premium is 5%. Debt carries a pre-tax cost of 9% and makes up 41% of the capital structure.
The seller is asking $4396 M for the enterprise.
operating
- revenue m
- 486
- tax rate pct
- 29
- ebit margin pct
- 25
- da pct of revenue
- 3
- revenue growth pct
- 12
- capex pct of revenue
- 8
- nwc pct of incremental revenue
- 3
transaction
- asking enterprise value m
- 4396
capital structure
- equity beta
- 1.37
- debt weight pct
- 41
- risk free rate pct
- 4.1
- equity risk premium pct
- 5
- pre tax cost of debt pct
- 9
Value the business and advise on the asking price. Provide:
- Analysis — a five-year free cash flow projection, your WACC, and a terminal value.
- Risks — the assumptions your valuation is most sensitive to.
- Recommendation — is $4396 M attractive? What would you pay?
Show your calculations. State assumptions explicitly where the case is silent.
100 points, 60% to pass.
- discount rate20
- recommendation20
- terminal value20
- cash flow projection25
- sensitivity analysis15
Reveal suggested structure
-
Free cash flow for each of years 1-5: FCF = EBIT × (1 − t) + D&A − capex − ΔNWC
-
WACC:
- Cost of equity = 4.1% + 1.37 × 5% = 10.95%
- After-tax cost of debt = 9% × (1 − 29%) = 6.39%
- WACC = 59% × cost of equity + 41% × after-tax cost of debt
-
Terminal value at year 5, using either perpetuity growth (g below long-run GDP) or an exit EBITDA multiple. Sanity-check one against the other.
-
Discount everything to today, sum, and compare with the asking price.
-
Sensitivity across WACC and terminal growth.