Congoleum as a Good LBO Candidate

Congoleum Case Study
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September 28, 2021
1 Congoleum is a good LBO candidate because of the following reasons:
1 It has stable earnings and revenues throughout the duration of the period of observation.
2 The debt and equity structure, as discussed by David Koester, is designed to reduce any conflict between the institutional investors.
3 Management Stock and Option Ownership is currently low, with the LBO strategy providing for an option for the management team to purchase more equity in the future.
4 Low levels of both debt-to-equity and debt ratio, which makes it ideal for a Leveraged Buyout Offer (LBO). Taken from Exhibit 3 Consolidated Balance Sheets.
2 In order to conduct a valuation analysis, the author dissected and treated the post-1984 period from 1980-1984. In turn, the authors were able to determine the “Free Cash Flows” from the period 1980-1984. This resulted to $172.4 million in total, which suggests that the company would have sufficient cash flow to pay off its debt that is used to finance the whole Buyout Process CITATION Wal20 \l 1033 (Wall Street Oasis, 2020).
Another important valuation tool that could indicate the success of the LBO is the Actual Present Value. This represents “the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits” CITATION Fer21 \l 1033 (Fernando, 2021). In conducting the valuation for the APV, the authors took into consideration the fact that there were some ‘long-term debts’ that existed before 1979. Particularly, the result is arrived at by adding bo...