Jayhawk CAPITAL ADVISORS
Mid-Term Assignment
Background: You work as an analyst for Jayhawk Capital Advisors (“JCA”), a leading middle-
market investment bank. JCA has been engaged by the shareholders of ABC Auto Parts (“ABC”
or the “Company”) to evaluate an unsolicited takeover bid for $175 million from the Company’s
largest competitor, Auto Parts International (“API”). As part of their evaluation of the offer, the
shareholders have asked JCA to provide its assessment of the fundamental value of the Company
and to advise whether they should accept or reject the proposed bid.
Company Description: ABC Auto Parts is a family-owned specialty parts manufacturer
primarily for automotive and light truck OEM and aftermarket. The Company generates
approximately 65% of sales in the automotive aftermarket, and the balance in light truck and
auto OEM. API is currently 100% automotive OEM. One customer accounts for over 40% of
ABC sales, and the majority owner is seeking to retire immediately. ABC files taxes as a C-
Corp.
Assignment: Your managing director has asked you to build a financial and valuation model,
and provide a written response regarding the fair value of ABC and the recommendation to its
shareholders.
Financial Model: Build a fully functional financial model that integrates a simple income
statement, balance sheet (or NWC statement) and statement of cash flows for ABC. The model
should include the Company’s historic financial results and have five years of projections.
Valuation Model: Propose a value for ABC using a discounted cash flow and at least one other
valuation methodology. You may use data attached to this assignment in your valuation analysis
of the Company.
Input Assumptions: The model should be based on, but not limited to, the Company’s historical
financials and the following input assumptions:
• Industry growth of 5% in 2025
• ABC expects 15% revenue growth in 2026
• One-time raw material increase of 10% expected in 2026 (raw material is 50% of COGS)
• ABC currently has no interest-bearing debt
• Estimated tax rate of 35%
• DSO (receivables) is 45 and inventory turn is 6.0X
• ABC typically pays its accounts payable within 30 days
• Capital expenditures roughly equal annual depreciation
• ABC keeps a maximum of $500K in cash and dividends the rest
Writing Assignment: Please provide a written description of the strategy you used to build your
financial model, including any assumptions you had to make, and the rationale for those
assumptions, outside of those provided. Also provide your rationale for valuing the company
including a brief description of your valuation assumptions. Finally, based on your estimate of
the Company’s fair value, describe why you would advise the shareholders to accept or reject the
takeover bid by API. The written portion should at least one page.
Company data follows:
ABC Auto Parts – Historical Income Statement ($ in thousands)
2024A
- Revenue: $69,500
- COGS: $46,913
- Gross Profit: $22,588 (32.5%)
- SG&A: $12,163
- Depreciation: $1,250
- Total Operating Expenses: $13,413
- EBIT: $9,175
2025A
- Revenue: $82,500
- COGS: $54,863
- Gross Profit: $27,638 (33.5%)
- SG&A: $14,438
- Depreciation: $1,250
- Total Operating Expenses: $15,688
- EBIT: $11,950
ABC Auto Parts – Historical Balance Sheet ($ in thousands) 12/31/2024
- Cash: $500
- Accounts Receivable (Net): $8,568
- Inventory: $7,819
- Total Current Assets: $16,887
- Fixed Assets (Net): $4,000
- Total Assets: $20,887
- Accounts Payable: $4,925
- Accrued Expenses: $100
- Total Current Liabilities: $5,025
12/31/2025
- Cash: $500
- Accounts Receivable (Net): $10,171
- Inventory: $9,144
- Total Current Assets: $19,815
- Fixed Assets (Net): $4,000
- Total Assets: $23,815
- Accounts Payable: $5,775
- Accrued Expenses: $100
- Total Current Liabilities: $5,875
Select Precedent Transactions
- Nov-25 – Acme Auto (Acquirer: Delphi)
- Enterprise Value: $1,205
- EV/Revenue: 1.2x
- EV/EBITDA: 12.2x
- Aug-25 – Gulf Parts (Acquirer: LCI)
- Enterprise Value: $850
- EV/Revenue: 1.8x
- EV/EBITDA: 10.1x
- May-25 – Auto Services (Acquirer: Magna)
- Enterprise Value: $555
- EV/Revenue: 1.2x
- EV/EBITDA: 7.5x
- Mar-25 – Hi-Tech Auto (Acquirer: API)
- Enterprise Value: $762
- EV/Revenue: 1.5x
- EV/EBITDA: 10.9x
- Nov-24 – APT Industrial (Acquirer: Dana)
- Enterprise Value: $485
- EV/Revenue: 1.3x
- EV/EBITDA: 7.2x
- Nov-23 – Gibson Parts (Acquirer: Dana)
- Enterprise Value: $225
- EV/Revenue: 2.0x
- EV/EBITDA: 11.2x
Select Public Comparable Companies
- Borg Warner (BWA)
- Dana Corp (DAN)
- LKQ Corp (LKQ)
- Gentherm Inc (THRM)
- Standard Motor Products (SMP)
- Dorman Products (DORM)
extra points will be given for students attempting a 3-statement financial model, as well as the use of all 3 valuation methods.
Grades will be based on the following criteria:
- Quality of Financial Model – 30%
- Quality of Valuation Model – 30%
- Quality of Presentation – 25%
- Overall effort and creativity – 15%
