Dell Inc.

- LBO Model for Private Equity Interview Case Study

($ in Millions Except Per Share Data)
Transaction Assumptions
Company Name:
"Undisturbed" Share Price:
Offer Premium:

Dell Inc.
$
10.88
25.5%

Transaction Close Date:

Equity Purchase Price:
Transaction Enterprise Value:

Offer Price Per Share:

Funds Required:
Equity Purchase Price:
Plus: Debt Refinanced:
Less: Excess Cash:
Less: Founder Cash Contribu
Less: Founder Rollover:
Total Funds Required (Excl. F

13.65

Refinance Existing Debt?

No

% Debt Used for "Funds Required":

Debt Used:
Pro-Forma TTM Debt / EBITDA:

90%
12,650
5.2 x

Purchase Price Calculations:

Shares Owned by Founder:
Common Shares:
Diluted Shares:
Diluted Equity Value:
Less: Cash & Cash-Equivalents:
Plus: Debt
Plus: Noncontrolling Interests
Plus: Preferred Stock
Plus: Other Liabilities
Enterprise Value:

Diluted Shar
273.0
1,762.0
1,807.7

Name
Options A:
Options B:
Options C:
Options D:
Options E:
RSUs:
Total

$ 24,675
(12,569)
9,085
21
$ 21,212

Debt Assumptions

Revolver Commitment (Undrawn):

Total Existing Debt (if assumed):

$
$
%:

Total Debt Raised:

Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:

32%
12%
15%
16%
10%

1,100
9,085

$ Amount:
$
12,650
4,000
1,500
1,900
2,000
1,250

Microsoft - Subordinated Note:

16%

2,000

Sources & Uses

Sources:
Revolver:
Term Loan B:
Term Loan C:
ABL Facility:
Bridge Loan (1st Lien Fixed Rate Notes):
Bridge Loan (2nd Lien Fixed Rate Notes):
Microsoft - Subordinated Note:
Assume Existing Debt:
Company - Excess Cash:
Founder - Cash Contribution for Equity:
MD Investors - Founder Rollover Equity:
Silver Lake - Investor Equity:
Total Sources:

4,000
1,500
1,900
2,000
1,250
2,000
9,085
6,220
750
3,726
1,460
33,891

Ownership Percentages, Pre and Post-Deal:

Pre-Deal Ownership Percentages:
Michael Dell:
Silver Lake Partners:
Institutional Investors:
Total:

15.1%
0.0%
84.9%
100.0%

Goodwill Creation & Purchase Price Allocation

Goodwill Calculation:
Equity Purchase Price:
Less: Seller Book Value:
Plus: Write-Off of Existing Goodwill:
Total Allocable Purchase Premium:
Less: Write-Up of PP&E:
Less: Write-Up of Intangibles:
Less: Write-Down of DTL:
Plus: New Deferred Tax Liability:
Total Goodwill Created:
Financing Fees Amortization Period:

24,675
(10,680)
9,304
$ 23,299

(213)
(4,660)
1,032
19,459
5

Margins, Expense and Working Capital Trends, and BS / CFS Assumptions

FY Ending February 1,

Historical
2011

2010

Revenue Growth %:
COGS % Revenue:
SG&A % Revenue:
R&D % Revenue:
Effective Tax Rate:

(13.4%)
82.5%
12.2%
1.2%
29.2%

16.2%
81.5%
11.9%
1.1%
21.3%

AR % Revenue:
Inventory % COGS:
Prepaid Expenses % SG&A:

11.0%
2.4%
56.3%

10.6%
2.6%
44.1%

Accounts Payable % COGS:

Accrued Expenses % SG&A:
ST Deferred Revenue % Revenue:
LT Deferred Revenue % Revenue:

26.1%
60.1%
5.7%
5.7%

22.5%
57.3%
5.1%
5.7%

D&A % Revenue:
SBC % Revenue:
Deferred Taxes % Total Taxes:
CapEx % Revenue:

1.6%
0.6%
(8.8%)
0.7%

1.6%
0.5%
(6.3%)
0.7%

Income Statement
FY Ending February 1,
Revenue:
Cost of Goods Sold:
Gross Profit:

Historical
2011

2010
$ 61,101

52,902
43,641
9,261

61,494
50,098
11,396

SG&A Expense:
R&D Expense:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Operating Income:

6,465
624
2,172

7,302
661
3,433

Investment & Other Income, Net:

Pre-Tax Income:
Income Tax Provision:

(148)
2,024
591

(83)
3,350
715

Net Income:
EBITDA:

1,433
3,024

2,635
4,403

Balance Sheet
FY Ending February 1,

Historical
2011

2010
Assets:

Current Assets:
Cash & Cash-Equivalents:
Short-Term Investments:
Accounts Receivable, Net:
Short-Term Financing Receivables, Net:
Inventories, Net:
Prepaid Expenses & Other:
Total Current Assets:

Long-Term Assets:
Net PP&E:
Long-Term Investments:
Long-Term Financing Receivable, Net:
Other Non-Current Assets:
Goodwill:
Intangible Assets:
Capitalized Financing Fees:
Total Long-Term Assets:
Total Assets:
Liabilities & Shareholders' Equity:
Current Liabilities:
Revolver:
Accounts Payable:
Accrued Expenses & Other:
Short-Term Deferred Revenue:
Total Current Liabilities:
Long-Term Liabilities:
Total Existing Debt:
Long-Term Deferred Revenue:
Other Long-Term Liabilities:
Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:
Microsoft - Subordinated Note:
Long-Term Deferred Tax Liability:

10,635
373
5,837
2,706
1,051
3,643
24,245

2,181
781
332
6,113
9,407

13,913
452
6,493
3,643
1,301
3,219
29,021

1,953
704
799
6,122
9,578

33,652

38,599

- $
11,373
3,884
3,040
18,297

11,293
4,181
3,158
18,632

4,080
3,029
2,605
-

5,997
3,518
2,686
-

Total Long-Term Liabilities:

Total Liabilities:

9,714
$

28,011

12,201
$

30,833

Equity:
Shareholders' Equity:
Noncontrolling Interests:
Founder Equity:
Sponsor Common Equity:
Total Equity:

5,641

7,766

Total Liabilities & Equity:

33,652

38,599

BALANCE CHECK:

5,641
-

OK!

7,766
-

OK!

Cash Flow Statement

FY Ending February 1,
Net Income:
Depreciation & Amortization:
Stock-Based Compensation:
FX Rate Effects:
Deferred Income Taxes:
Provision For Doubtful Accounts:
Other:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Changes in Operating Assets & Liabilities:
Accounts Receivable:
Financing Receivables:
Inventories:
Other Assets:
Accounts Payable:
Deferred Revenue:
Accrued And Other Liabilities:
Cash Flow from Operations:

2010
1,433 $
852
312
59
(52)
429
102

2,635
970
332
(4)
(45)
382
26

(660)
(1,085)
(183)
(225)
2,833
135
(44)
3,906

(707)
(709)
(248)
516
(151)
551
421
3,969

(1,383)
1,538
(367)
16
(3,613)
(3,809)

(1,360)
1,358
(444)
18
(430)
69
(376)
(1,165)

Cash Flow from Financing:

Repurchases Of Common Stock:
Cash Dividends Paid:
Issuance Of Common Stock:
Issuance (Repayment) Of Comm. Paper:
Proceeds From Debt:
Repayments Of Debt:
Other:
Cash Flow from Financing:

2
76
2,058
(122)
(2)
2,012

(800)
12
(176)
3,069
(1,630)
2
477

Cash Flow Avail. for Debt Repayment:

2,109

3,281

Cash Flow from Investing:

Purchases of Investments:
Maturities And Sales of Investments:
Capital Expenditures
Proceeds From Asset Sales:
Purchase of Financing Receivables:
Collections of Financing Receivables:
Acquisition Of Businesses:
Cash Flow from Investing:

Historical
2011

Revolver:
Total Existing Debt:
Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:
Microsoft - Subordinated Note:
Total Cash Flow Used to Repay Debt:

Effect of Exchange Rates:

174

Net Change in Cash:

2,283

3,278

8,352
10,635

10,635
13,913

Beginning Cash Balance:

Ending Cash Balance:

(3)

Debt & Interest Schedules

FY Ending February 1,
LIBOR Curve:
Interest Rate Assumptions:
Revolver:
Total Existing Debt:
Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:
Microsoft - Subordinated Note:
Cash & Cash-Equivalents and All Investments:
Interest Income / (Expense) Calculations:
Revolver:
Total Existing Debt:
Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:
Microsoft - Subordinated Note:
Cash & Cash-Equivalents and All Investments:
Net Interest Income / (Expense):
Sources of Funds:
Beginning Cash Balance:
Less: Minimum Cash Balance:
Plus: Cash Flow Available for Debt Repayment:
Subtotal Before Revolver:
Revolver Borrowing Required:
Total Sources of Funds:
Uses of Funds:
Mandatory Debt Repayment:
Total Existing Debt:
Term Loan B:
Term Loan C:
ABL Facility:
Bridge Loan (1st Lien Fixed Rate Notes):
Bridge Loan (2nd Lien Fixed Rate Notes):

LIBOR +
1.00%
2.50%
3.50%

Microsoft - Subordinated Note:

Mandatory Repayment Total:
Optional Debt Repayment:
Revolver:
Total Existing Debt:
Term Loan B:
Term Loan C:
ABL Facility:
Bridge Loan (1st Lien Fixed Rate Notes):
Bridge Loan (2nd Lien Fixed Rate Notes):
Microsoft - Subordinated Note:
Optional Repayment Total:
Cash Generated on Balance Sheet:
Total Uses of Funds:
Investor Returns
FY Ending February 1,
EBITDA:
EBITDA Multiple:
Enterprise Value:
Investor Equity:
IRR:

nsaction Close Date:

ity Purchase Price:
nsaction Enterprise Value:

2/1/2013
$
24,675
21,212

ds Required:
Equity Purchase Price:
Plus: Debt Refinanced:
Less: Excess Cash:
Less: Founder Cash Contribution:
Less: Founder Rollover:
al Funds Required (Excl. Fees):

EBITDA Purchase Multiple:

Baseline EBITDA Exit Multiple:
Advisory Fee %:
Financing Fee %:
Legal & Misc. Fees:

24,675
(6,220)
(750)
(3,726)
13,979

LIBOR Units:

Diluted Shares:

Number
8.0
42.0
45.0
31.0
17.0
42.0

Exercise
Price
$
7.38
15.57
25.86
34.31
40.23

Minimum Cash Balance:

Tax Rate for Repatriated Cash:
Company Effective Tax Rate:
Dilution
3.675
42.000
45.675

Interest Rates:

Principal Repaymen

Revolver:
Total Existing Debt:

L + 100
3.66%

Revolver:
Total Existing Debt:

Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:

L + 250
L + 350
5.50%
6.00%
6.50%

Term Loan B:
Term Loan C:
ABL Facility:
1st Lien Fixed Rate Notes:
2nd Lien Fixed Rate Notes:

Microsoft - Subordinated Note:

7.50%

Microsoft - Subordinated Note:

Uses:
Equity Value of Company:
Refinance Existing Debt:
Assume Existing Debt:
Advisory Fees:
Capitalized Financing Fees:
Legal & Misc. Fees:
Total Uses:

Post-Deal Ownership Percentages:

Michael Dell:
Silver Lake Partners:
Institutional Investors:
Total:

75.4%
24.6%
0.0%
100.0%

Fixed Asset Write-Up:

PP&E Write-Up %:
PP&E Write-Up Amount:
Depreciation Period (Years):

10.0%
213
8

Intangible Asset Write-Up:

Purchase Price to Allocate:
% Allocated to Intangibles:
Intangibles Write-Up Amount:
Amortization Period (Years):

New Deferred Tax Liability:

24,675
9,085
25
76
30
33,891

23,299
20.0%
4,660
5

1,032

ssumptions
Historical
2012

2013

0.9%
77.7%
13.7%
1.4%
17.6%

(8.3%)
78.6%
14.2%
1.9%
16.5%

10.4%
2.9%
40.2%

11.6%
3.1%
49.0%

24.2%
46.2%
5.7%
6.2%

25.9%
45.0%
7.7%
7.0%

1.5%
0.6%
2.5%
1.1%

2.0%
0.6%
(91.3%)
0.9%

Historical
2012
$

62,071
48,260
13,811

2013
$

56,940
44,754
12,186

8,524
856
4,431

8,102
1,072
3,012

(191)
4,240
748

(171)
2,841
469

Transaction Adjustments
Debit
Credit
2013

Transaction Adjustments
Debit
Credit
2013

Projec
2014

Projec
2014

3,492
5,367

2,372
4,156

Historical
2012

13,852
966
6,476
3,327
1,404
3,423
29,448

2013

2,124
3,404
1,372
490
5,838
1,857
15,085

12,569
208
6,629
3,213
1,382
3,967
27,968

2,126
2,565
1,349
854
9,304
3,374
19,572

44,533

47,540

- $
11,656
3,934
3,544
19,134

11,579
3,644
4,373
19,596

9,254
3,836
3,392
-

9,085
3,971
4,187
-

Transaction Adjustments
Debit
Credit
2013

Proje
2014

16,482
$

35,616

17,243
$

8,917
-

36,839

10,680
21

8,917

10,701

44,533

47,540

OK!

OK!

Historical
2012
$

2013

3,492 $
936
362
(5)
19
234
21

2,372
1,144
347
18
(428)
258
19

(53)
(372)
(52)
(28)
327
720
(74)
5,527

(150)
(193)
48
(334)
(74)
382
(126)
3,283

(4,656)
1,435
(675)
14
278
(2,562)
(6,166)

(2,615)
4,354
(513)
135
167
(4,844)
(3,316)

(2,717)
40
635
4,050
(1,435)
4
577

(724)
(278)
52
(331)
3,311
(3,248)
8
(1,210)

(62)

(1,243)

Transaction Adjustments
Debit
Credit
2013

Proje
2014

1
(61)
13,913
13,852

(40)
(1,283)
13,852
12,569

Proje
2014
0.30%
Fixed
Interest
3.66%

5.50%
6.00%
6.50%
7.50%

1,404

2013

2014

5.1 x
4.0 x

Exit Multiple:

0.10%
0.60%
30

10,000

triated Cash:
ve Tax Rate:

3,000
35.0%
21.2%

Principal Repayment %:

l Existing Debt:

Lien Fixed Rate Notes:

Lien Fixed Rate Notes:

N/A
(See schedule)

5.0%
1.0%
0.0%
0.0%
0.0%

rosoft - Subordinated Note:

0.0%

2015

Projected
2016

2017

2018

2015

Projected
2016

2017

2018

2015

Projected
2016

2017

2018

2015

Projected
2016

2017

2018

2015
0.30%

1,291

Projected
2016
0.50%

701

2017
0.75%

400

2018
1.00%

300

2015

2016

2017

2018

Dell Inc. - Revenue, Operating Income, and Market Share and Market Data
($ in Millions Except Per Share Data)
Income Statement - Segment-Level Revenue & Operating Income and Market Data
Historical
FY Ending February 1,
2010
2011
2012
Revenue by Business Unit:
Global Large Enterprise:
Global Public:
Global Small And Medium Business:
Global Consumer:
Total Revenue:
Market Share of Business Units:
Global Large Enterprise:
Global Public:
Global Small And Medium Business:
Global Consumer:
Operating Income by Business Unit:
Global Large Enterprise:
Global Public:
Global Small And Medium Business:
Global Consumer:
Total Operating Income:
Revenue by Product:
Servers and Networking:
Storage:
Services:
Software & Peripherals:
Mobility:
Desktop PCs:
Total Revenue:

52,902

8.9%
12.0%
20.9%
31.8%

18,111
16,377
12,608
14,398
61,494

8.6%
12.8%
17.7%
29.3%

18,786
16,070
13,547
13,668
62,071

8.7%
13.0%
16.9%
26.5%

3,327

1,490
1,446
1,383
180
4,499

1,889
1,584
1,581
433
5,487

6,032
2,192
5,622
9,499
16,610
12,947
52,902

7,609
2,295
7,673
10,261
18,971
14,685
61,494

8,336
1,943
8,322
10,222
19,104
14,144
62,071

Market Share by Product:

Servers and Networking:
Storage:
Services:
Software & Peripherals:
Mobility:
Desktop PCs:

12.1%
N/A
N/A
N/A
12.1%
13.2%

14.4%
N/A
N/A
N/A
11.7%
13.7%

15.0%
N/A
N/A
N/A
11.9%
13.5%

Total Market Size by Product Segment:

Servers and Networking:
$
49,851 $
52,840 $
55,573
Storage:
N/A
N/A
N/A
Services:
N/A
N/A
N/A
Software & Peripherals:
N/A
N/A
N/A
Mobility:
136,920
162,145
160,538
Desktop PCs:
98,198
107,582
104,770
Other Data - Global Desktop, Notebook, and Tablet Shipments (Millions):
Enterprise Desktops:
94.7
84.4
89.9
87.6
Enterprise Notebooks:
69.9
68.3
80.8
86.2
Consumer Desktops:
48.0
47.1
49.9
48.2
Consumer Notebooks:
59.1
69.0
89.1
98.8
Consumer Netbooks:
12.9
32.7
34.4
24.4
Total, Branded PCs:
301.5
344.1
345.2
Non-Branded PCs:
23.9
20.8
27.5
43.2
Total Shipments:
322.3
371.6
388.4
Tablet Shipments:
Total
Total
Total
Total

Enterprise Shipments:
Consumer Shipments:
Desktop Shipments:
Notebook Shipments:

Growth Rates by Segment:

Enterprise:
Consumer:
Desktop:
Notebook:
Non-Branded PCs:
Tablets:

164.6
120
142.7
141.9

0.0

18.0

70.0

152.7
148.8
131.5
170.0

170.7
173.4
139.8
204.3

173.8
171.4
135.8
209.4

(7.2%)
24.0%
(7.8%)
19.8%
(13.0%)
N/A

11.8%
16.5%
6.3%
20.2%
32.2%
N/A

1.8%
(1.2%)
(2.9%)
2.5%
57.1%
288.9%

Services Segment Metrics:

Deferred Revenue from Warranties:
Contracted Services Backlog:
Total Services Backlog:
New Signings:
Growth Rate:

5,900
6,900
12,800
N/A
N/A

6,400
7,500
13,900
N/A
17.0%

7,000
8,500
15,500
1,900
N/A

and Market Data

al
2013

17,781
14,828
13,413
10,918
56,940

7.0%
12.0%
15.0%
24.0%

1,553
1,238
1,505
(11)
4,285

9,294
1,699
8,396
9,257
15,303
12,991
56,940

17.1%
N/A
N/A
N/A
10.1%
12.3%

54,351
N/A
N/A
N/A
151,515
105,618

89.3
86.0
42.7
95.3
17.1
330.4
60.2
390.6
125.0
175.3
155.1
132.0
198.4

0.9%
(9.5%)
(2.8%)
(5.3%)
39.4%
78.6%

N/A
N/A
16,300
2,100
10.5%

Transaction Adjustments
Debit
Credit
2013

2014

2015

Projected
2016

ojected
2017

2018