Deal Analysis in Semiconductor sector private equity firm

A US-based $5bn private equity asset management firm wanted support for its core investment team in analyzing a deal in the semiconductor industry and provide actionable insights for deal negotiation.
Expected deliverables were key insights on business performance, future growth potential, regulatory challenges, competitor analysis, key transaction risks and expected return.

Conducted detailed fundamental research on company financials to get insights on revenue growth, cash flows and other key performance indicators.
Identified that company had not only outpaced the industry growth by 10% in the past 5 years, but also had an above average operating margin of 24%.
Found that the company’s next gen EUV product could extend the coverage of its customer roadmaps by 10-15 years which would help it to increase its market share.
Identified that the company had been gaining market share for the past three years.
Analyzed that the company has key risks from its limited number of customers. Any business failure or insolvency of one of their main customers could result in significant credit losses for the company.
Researched the impact of current regulation on exports and found that the US government could require a license for many high-tech products shipped to China from other countries if US made components constitute more than 25% of the value.
Based on research and management commentary, JMI found that company did not meet the 25% threshold but the US department might consider lowering the 25% threshold in some cases which could be a key risk in its future growth.
Correlated the company’s enterprise value and EBITDA with competitors to understand its valuation with operating metrics.

Delivered financial model with sensitivity analysis comprising of key business drivers, cost structures, product mix and future growth prospects.
Computed company’s proposed valuation of 12.5x EV/EBITDA and expected return of c.36% for an investment period of 5 years.