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Diary Dai

on 16 January 2013

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Transcript of brazos

Brazos Partners and Cheddar’s Inc. ——Liu Meijun
Liu Yanchunzi
Dai Yirui Basic Information 1.The scale:42 restaurants in 13 states
2.Good and professional management team
3.Fish Daddy's concept
4.Profitability: lack of advertising and focus on costs. Advantages of Cheddar 1.lower rent expense;
2.increase the company's flexibility;
3.provides more cash flow benefits. Sale/leaseback strategy A significant change characters retaining operating liquidity tax-efficient Focus shifting:smaller opportunities
Targated companies: $50---$250 million
Generation Transfer Transaction(GTT) Advantages of Brazos Value the Cheddar's Inc Analysis of the deal CAPM Capital Asset Pricing Model of Cost of Equity:
Where: Rf (Generally use long-term government bond rate.)
Rm-Rf= The risk premium for common stocks.
β=Beta, ameasure of the systemetic risk of a firm’s common stock. β=0.655 Re=3.96%+0.655*(13%-3.96%)=9.8812% DCF value Implementing the Continuing (Terminal) Value Concept
PV: present value of the venture
Ct: the annual cash flow for each explicit period, t
CVT is the continuing value at the end of the explicit period, time T
rt is the discount rate for period t cash flows. Implementing the Continuing Value Concept Estimating the multiple

Cash flow multiple cash flow (In $ thousands):
Year2004 (12,000-28928*6.9445%)*(1-35%)=6,494.21
Year2005 (13700-22068*6.9445%)*(1-35%)=7,908.87
Year2006 (15181-14497*6.9445%)*(1-35%)=9,213.27
Year2007 (16810-5434*6.9445%)*(1-35%)=10,681.21 PV (In $ thousands) Cash Flow PV
PV ∞=22,764.4/(1+R)3=173,185.91 Price Per Share 2003:the total amount of shares=
$60.5 million/ $1-per-share=60.5 M

2004: Price Per Share=$202,559,532/60,500,000
=$3.34809 Value of Cheddar= $202,559,532 During 1980s,American LBO epitomized success and excess.For instance,In 1987,banks were so eager to loan for LBOs that firms only had to contribute 7% equity to a deal.
Two years later, in 1989, the equity contribution had doubled, and in 1991, so few LBOs were completed that there was insufficient data for a sample. American LBO LBO firms made money by buying established companies, improving or changing their operations, and eventually selling the enterprise or taking it public. LBO the casual dining chain operated 42 restaurants primarily in the Southwest U.S., and was headquartered in Dallas, Texas. It was well-run, having never lost money or closed a company-owned unit since its founding in 1978. cheddar Brazos Private Equity Partners was a middle-market leveraged buyout (LBO) group, founded in 1999 by Fojtasek, Jeff Fronterhouse and Patrick McGee. Brazos Partners Equity Partners The LBO recovery appeared to have arrived in earnest by mid-2004.Fundraising through the third quarter of that year was twice that of all of 2003; transactions were up by almost 50% and their dollar volume almost double that of the entire previous year. American LBO American LBO spent the 1990s recovering from that crash.Only in the final years of the decade the LBO market shake off its doldrums.
As with VC, LBO activity and fundraising fell in the early 2000s.
Although prices of target companies sagged, the equity contribution rose steadily to a peak of 37.3% in 2002. American LBO Fojtasek, Fronterhouse, and McGee had founded Brazos in late 1999, adding Michael Salim as partner and general counsel a few years later.
Brazos targeted companies with enterprise values between $50 million and $250 million, solid management teams, and well-defined niches. Often, these companies were close to Brazos’ Dallas home. Brazos Partners Equity Partners Estimate the Cheddar's Value by Multiplier Value of Cheddar=EBITDA*Multiplier
Price Per Share=$1.4669 Make the Choice 1.How to price the stock?
2.Whether to sell it to Cheddar's Inc?
3.How many shares to sell? DCF value > Value estimated by EBITDA Multiplier
$3.35 $1.47

[2.5,3.4] 1. To continue the corporation relationship with Cheddar, so sell it.
2. To achieve profits from the deal, so sell it.
3.But to sell it only when Cheddar can accept the price. Since Cheddar is and will still in the stage of quick growth, it's better for Brazos to hold the Cheddar rather than exit.
So, if Brazos will make this deal, at least Brazos should keep its shares more than 50% of the company. Thank You~
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