Section 5.11 · target price £1,560,000
Funding and returns
An indicative structure, a five-year cash flow, and the four mandate tests. The maximum price falls out of whichever test binds first, and here it is debt service cover.
Base IRR
65.3%
Hurdle 25%
Downside IRR
51.2%
Hurdle 15%
Minimum DSCR
1.78×
Floor 1.5× · year 1 binds
Equity payback
2.6 years
Limit 5 years
The IRR hurdle never binds on this deal. Debt service cover does. Buying at 3.4× normalised EBITDA with a 9.5% cost of senior debt produces a modelled return far above the 25% hurdle at any price the lender would fund. The constraint that actually sets the maximum price is the 1.5× DSCR floor, which is reached at £1,740,000.
A high modelled IRR is a statement about the entry multiple, not a prediction. It assumes the forecast holds, the debt is available on these terms, and a buyer exists at exit. All three are assumptions, and all three are listed as such below.
Sources and uses at £1,560,000
| Source | GBP | Share | Terms |
|---|---|---|---|
| Buyer equity | 420,000 | 26.9% | From the mandate. The full amount available. |
| Senior term debt | 780,000 | 50.0% | 6 years, 9.5%, fully amortising. 1.33× normalised EBITDA. |
| Vendor loan note | 260,000 | 16.7% | 6%, interest only, principal repayable on exit |
| Deferred consideration | 100,000 | 6.4% | Payable at month 24, non-interest bearing |
| Total sources | 1,560,000 | 100.0% | |
| Purchase price, equity | 1,560,000 | 100.0% | Cash free, debt free. The seller settles the £312,000 bank loan from proceeds. |
| Assumed hire purchase | 88,000 | — | Novated, not refinanced. Serviced at £27,625 a year. |
| Transaction costs | 60,000 | — | Met from the £145,000 of acquired cash |
Total funded debt of £1,140,000 is 1.95× normalised EBITDA. Senior alone is 1.33×. Both sit inside the range a UK clearer would consider for a business with 68% contracted revenue.
Year one debt service
| Instrument | Interest | Principal | Service |
|---|---|---|---|
| Senior term debt | 74,100 | 102,375 | 176,475 |
| Vendor loan note | 15,600 | 0 | 15,600 |
| Assumed hire purchase | 7,040 | 20,585 | 27,625 |
| Total debt service | 96,740 | 122,960 | 219,700 |
Cash available for debt service
| Step | GBP |
|---|---|
| Platform normalised EBITDA | 585,200 |
| Less maintenance capex | −62,520 |
| Less working capital movement | −38,600 |
| Less cash tax, after relief on acquisition interest | −93,255 |
| CADS, year 1 | 390,825 |
| DSCR, year 1 | 1.78× |
CADS is struck after capex and tax, not before. A DSCR quoted on EBITDA alone would read 2.66× here, and would be wrong.
Five-year cash flow, base case
| GBP | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Normalised EBITDA | 585,200 | 627,000 | 662,000 | 697,000 | 723,000 |
| Maintenance capex | −62,520 | −67,000 | −70,700 | −74,500 | −77,300 |
| Working capital movement | −38,600 | −18,952 | −15,916 | −16,560 | −12,880 |
| Cash tax | −93,255 | −105,749 | −116,631 | −128,968 | −139,381 |
| CADS | 390,825 | 435,299 | 458,753 | 476,972 | 493,439 |
| Debt service | −219,700 | −219,700 | −219,700 | −219,700 | −219,700 |
| Deferred consideration | 0 | −100,000 | 0 | 0 | 0 |
| Distribution to equity | 171,125 | 115,599 | 239,053 | 257,272 | 273,739 |
| DSCR | 1.78× | 1.98× | 2.09× | 2.17× | 2.25× |
| Senior balance, closing | 677,625 | 565,524 | 442,774 | 308,363 | 161,182 |
Debt service is level across the five years because the vendor note is interest only. That is what keeps the minimum DSCR in year 1 rather than in a later year when amortisation would otherwise step up.
Exit and equity return
| Step | Base | Downside |
|---|---|---|
| Year 5 normalised EBITDA | 723,000 | 525,000 |
| Exit multiple, held at entry | 3.4× | 3.4× |
| Exit enterprise value | 2,458,200 | 1,785,000 |
| Less senior balance | −161,182 | −161,182 |
| Less vendor note principal | −260,000 | −260,000 |
| Less hire purchase | −88,000 | −88,000 |
| Add retained cash | +85,000 | +85,000 |
| Exit proceeds to equity | 2,034,018 | 1,360,818 |
| Distributions, years 1 to 5 | 1,056,788 | 740,246 |
| Total to equity | 3,090,806 | 2,101,064 |
| MOIC on £420,000 | 7.4× | 5.0× |
| IRR | 65.3% | 51.2% |
| Equity payback | 2.6 yrs | 3.0 yrs |
The exit multiple is held flat at the entry multiple. No multiple expansion is assumed, and no synergy, cost programme or bolt-on is credited anywhere in this model.
Mandate tests at £1,560,000
| Test | Required | Modelled | Result |
|---|---|---|---|
| Base IRR | ≥ 25.0% | 65.3% | Pass |
| Downside IRR | ≥ 15.0% | 51.2% | Pass |
| Minimum DSCR | ≥ 1.50× | 1.78× | Pass |
| Equity payback | ≤ 5 yrs | 2.6 yrs | Pass |
| Purchase price | ≤ 2,000,000 | 1,560,000 | Pass |
| Buyer equity available | 420,000 | 420,000 | Fully committed |
| DSCR under stress | ≥ 1.50× | 1.01× worst | Breach in 3 cases |
The final row is the reason the recommendation carries a working capital condition. Detail on the stress screen.
Price sensitivity — what the lender will fund
Buyer equity is held at £420,000 and the vendor note at £260,000, so every extra pound of price is senior debt. DSCR falls as price rises, and the 1.5× floor is what stops it.
| Price | Senior debt | Debt service | DSCR | Result |
|---|---|---|---|---|
| Opening offer £1,380,000 | 600,000 | 178,975 | 2.18× | Comfortable |
| Target £1,560,000 | 780,000 | 219,700 | 1.78× | Recommended |
| Maximum £1,740,000 | 960,000 | 260,425 | 1.50× | At the floor |
| Asking £1,850,000 | 1,070,000 | 285,313 | 1.37× | Below the floor |
| Mandate ceiling £2,000,000 | 1,220,000 | 319,250 | 1.22× | Unfundable on these terms |
Recommendation: attractive only below £1,740,000. The asking price of £1,850,000 produces a year-one DSCR of 1.37×, below the 1.50× floor. No lender term sheet in the assumption table supports it, and the gap is not closed by any accepted add-back.
What moves the maximum
| Change | CADS | Maximum price | Reaches the asking price |
|---|---|---|---|
| As modelled | 390,825 | 1,740,000 | No |
| Both challenged add-backs accepted in full | 404,183 | 1,780,000 | No |
| Vendor note increased to £500,000 | 390,825 | 1,917,000 | Yes, if the seller agrees |
| Owner replacement cost not required | 438,913 | 1,882,000 | Yes, but the buyer works full time |
| Senior term extended to 8 years | 390,825 | 1,961,000 | Yes, at a higher total interest cost |
The most productive lever is the vendor note, not the price. A seller who takes £500,000 as paper rather than cash can be paid the asking price without breaching the DSCR floor, and carries part of the risk in exchange.
Assumptions this model depends on
- Senior debt available at 9.5% over 6 years, fully amortising. At the target price the senior tranche is £780,000, which is 1.33× normalised EBITDA. The price sensitivity table above binds on the 1.50× DSCR floor rather than on a leverage multiple, so senior reaches 1.64× at the £1,740,000 maximum. A lender that also capped leverage at 1.33× would fund no more than £778,000 and the maximum price would fall to about £1,558,000. Assumption
- The seller accepts a £260,000 vendor note on interest-only terms. Assumption
- The forecast on the forecast screen holds. Forecast
- An exit exists at year 5 at the entry multiple. Assumption
- Maintenance capex stays at the historic run rate with no fleet step change. Assumption
- Cash tax is charged at the prevailing corporation tax rate with relief on acquisition interest. Calculated
- No personal tax on distributions or exit is modelled. That is the buyer's own position, not the platform's. Out of scope
Remove any one of the first four and the return changes materially. Each is tagged so the Stage 2 report reproduces it as an assumption rather than as a finding.
AcquiScope produces analysis and modelling, not regulated investment advice. Debt terms shown are illustrative assumptions, not offers, and no lender has been approached. Every figure belongs to an invented business.