Mandelbaum Sale-Leaseback Advisors

Sample

Assume that a company has $50 million of EBITDA; a market valuation of 6.0x EBITDA, or $300 million; and net debt of 3.0x EBITDA, or $150 million.

Suppose this company enters into a $25 million sale-leaseback transaction at a 10% cap rate, which means that its annual lease payments are 10% of the transaction price, or $2.5 million.

The table below shows the sale-leaseback’s impact on the company’s valuation and capitalization:

Sample Sale-Leaseback Image11

As a result of this $25 million transaction, the company’s equity value has increased by $10 million, using the same valuation metric as before. Liquidity has also increased, because leverage has been reduced by $25 million, dropping it from 50% to 44% of total capitalization and from 3.0x to 2.6x EBITDA.

Thus the sale-leaseback transaction has increased the equity value of the company while actually reducing risk.