Acova Radiateurs 1. Is Acova a good LBO candidate? Acova should be a suitable candidate for Leverage Buyout (LBO), given its marketing-leading position in a steadily growing industry. Based on its stable historical and projected sales performance, we believe its prospective cash flow would be sufficient to offset the debt and interest expenditure incurred with the LBO. Another evidence substantiating its suitability was the current ROIC of 15%, which implied large rooms for further utilization of existing assets and hence potential of generating higher sales. Also, many of its production machines were manufactured internally, i.e. these were real assets which could further generate values. The competent and enthusiastic management teams were valuable assets to the company. All in all, Acova basically fulfilled the criteria of a good LBO candidate, yet whether the BO was justifiable depended largely on the offered price which was determined by an accurate valuation of firm value. 2. What is the value of Acova? Does it merit the proposed acquisition price of FFr 340MM? Based on the calculation. 3. Why does Baring Capital Investors seek such a high rate of return of 30 – 35%? Baring Capital Investors should demand a rate of return higher than the market rate of return under the circumstance of LBO, given a higher risk arising from debt financing. (The 30 – 35% would be quantified by re-calculating the WACC in the post-LBO scenario) 4. How does the levered cost of equity compare to BCI’s 30 – 35% hurdle rate on investment? To be discussed

Acova Radiateurs

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Acova Radiateurs

1. Is Acova a good LBO candidate?Acova should be a suitable candidate for Leverage Buyout (LBO), given its marketing-leading position in a steadily growing industry. Based on its stable historical and projected sales performance, we believe its prospective cash flow would be sufficient to offset the debt and interest expenditure incurred with the LBO. Another evidence substantiating its suitability was the current ROIC of 15%, which implied large rooms for further utilization of existing assets and hence potential of generating higher sales. Also, many of its production machines were manufactured internally, i.e. these were real assets which could further generate values. The competent and enthusiastic management teams were valuable assets to the company.All in all, Acova basically fulfilled the criteria of a good LBO candidate, yet whether the BO was justifiable depended largely on the offered price which was determined by an accurate valuation of firm value.

2. What is the value of Acova? Does it merit the proposed acquisition price of FFr 340MM?Based on the calculation.

3. Why does Baring Capital Investors seek such a high rate of return of 30 – 35%?Baring Capital Investors should demand a rate of return higher than the market rate of return under the circumstance of LBO, given a higher risk arising from debt financing.(The 30 – 35% would be quantified by re-calculating the WACC in the post-LBO scenario)

4. How does the levered cost of equity compare to BCI’s 30 – 35% hurdle rate on investment?To be discussed