Goldman Sachs: Analyzing a Potential LBO for Crocs

On November 13, Crocs CROX revealed the company is considering strategic options which may include going private. Related: Crocs Said to Explore Strategic Options Analysts at Goldman Sachs GS released a detailed report on November 19 which analyzed the potential for a leveraged buy out (LBO) for the company. Any price tag on a deal has to have a 20 percent premium to the company's stock price. The analysts noted that a 20 percent premium translates to a lower valuation than the company held for comparable deals in 2010. The average premium of similarly structured deals since 2010 amounted to 23 percent. The analysts noted that the company holds $332 million in cash, 97 percent of which is overseas. Should a new owner wish to repatriate the funds, it will come with a $53 million repatriation penalty based on the company's 10Q published on October 30. A large private equity investor should not have a need to immediately access the cash. The company has a $100 million revolving credit facility already in place. The analysts estimated a total deal size (include investment banking fees) would total $1.5 billion. At a leverage target of 5.5X and a 20 percent equity premium, $860 million in new debt would need to be issued. A potential deal would require an equity sponsor contribution of $300 million, representing around 26 percent of the enterprise value. The analysts concluded that a potential purchase price could come in at $16.30 a share, representing a further 18 percent upside based on the opening price the same day Goldman issued its report.