On 3/11/11 Bloomberg published an article commenting on the possible attractiveness of American Eagle Outfitters, Inc. (AEO) to private equity investors.
I did a quick LBO analysis of American Eagle assuming 3% annual sales growth; gross margin and operating earnings percents in line with history; and an EBITDA exit multiple of 10.0 four years after the purchase.
Assuming a private equity investor required a pretax rate of return of 25% and made an equity investment equal to 20% of the total purchase price, I forecast the net pretax proceeds to AEO shareholders in this scenario to be approximately $3.7 billion, or about 18% above the company’s current market cap of $3.13 billion as reported by Google Finance on 03/11/11.
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