In the three tab, we want to check the percentage of debt that's been repaid. This typically has to be 50% of debt by year seven. Otherwise, your lenders aren't going to lend you the debt you need in order to make these acquisitions. So it's a really important metric for us to check. We've already got the base case debt drawn down. You might notice that figure just stays the same throughout.

But I want to include the add-on debt drawn down. And we only want it to happen in the year that it's drawn down year two and only if the add-on switch has been ticked. So there's quite a lot going on here. So I'm gonna use an if function to determine the year. If we go up to our years in row 19, I want to say if this year he year one, if that's greater than or equal to the acquisition year. So I can just type in add on year. If that's the case, then I want to go and get the add on debt. So I'll get that from the two tab. It's up near the top in the sources and uses of fun. It's this 146 and I lock onto it. So if we're in year two or after I want this number, the only thing I need to do then is multiply it by the add-on switch. because I only want it here if the add-on switch is on. So if all of those conditions are met, we'll get the debt to come through, otherwise we'll just get a zero. Unfortunately that's what happens here. But if we now copy that to the right, great in year two, that debt comes through and then it stays there. So I'll copy that all the way to the right.

So now I can see what's happened is that our total debt drawn down has gone up after year two and the percentage of debt being repaid, ah, it gets up near 50% by year four by year seven in fact, we've managed to completely repay the debt. So what a great result. So we haven't got any issues with the debt repayment if we just check our debt to EBITDA. The total debt includes the extra debt coming in year two and it includes the extra EBITDA coming in from year three. We can see our debt to EBITDA is never above 4.1, so that's fine.

Now we just need to finish up the model by calculating the equity cash flows to and from the equity holders. And then finally the IRR for this, only the total EBITDA. Got that here. Then I can multiply that by the exit multiple that's up at the top of this tab. It's that 11. I'll look onto that. Now we need our net debt. Now I want this to come through as a negative. So what I'll do is I'll go grab the cash And then I'll subtract the total debt and my net debt comes through. Is it negative? Fantastic. And then I can calculate my equity value by summing the EV and that negative net debt.

Lastly, I need to ask, were there any other equity cash flows? Yes, we need the equity investment for the add-on and we'll have that coming through in year two. So how do I get that to appear just in year two? Again, it's that if function. So I use equals if up to the top, find our year, year count in G19, if that equals the add-on year, then go and get me the equity. The equity is coming from the two tab and I'll lock onto that, but I multiply it by the add-on switch. So if we're in year two, that will come through to the three tab, otherwise I'll get a 0. Now the only thing is this is gonna be a cashflow going out for my equity holders. They're gonna be spending money, so I'm just gonna multiply the whole of that by minus 1. And if we copy all of this to the right in year two, we see that extra cashflow happening. Great. So now the final cashflow to equity holders in year zero we'll just have the base case LBO being purchased. So let's go to the number one tab, find the equity there.

I'm gonna multiply that by minus 1 because it has to be a negative for this calculation to work. So I've worked out how much I've had to invest so far. We've had to invest 1,437. I now want to work out in year one what cash flows would I return back to me if we're in the exit year. So I'm gonna have to use the if function to work out if we're in the exit year up at the top of the tab. My exit year is year five. So if lot, if that year five equals the year that we're in, then I want to receive the cash flows that we've got in row 91. Otherwise give me a 0. But regardless of what's happening on there, I still want to make sure that the equity investment for the add-on happens. There's no if function needed there. So let's just copy this to the right and see what happens in year two. Fantastic. We have that equity cash outflow happening and if we go through to year five, ah, that's our exit year and we receive the full 5285.9.

The final check, then what happens to the IRR? I'll do an IRR on all of these equity numbers and it's come out at 29.4. So what, is this good or is this bad? Well, I can compare this to the LBO base case. The one tab, I could scroll all the way down to the bottom and I can see that the initial IRR there was 27.8. Great. So we've definitely done a little bit better. It's got up to 29.4. Let's just check what happens when we turn off the add-on. So up to the top of the three tab, add-on acquisition switch, turn that to a 0.

It goes back down to the same as the one tab. So we know that our model's working. I'm gonna turn it back on again and I want to ask why has this IRR gone up? Are there a couple of reasons we can find it? And the answer is a definite yes. The first one is I want to look at the exit multiple we're exiting on a multiple of 11, but how much did we buy the add-on? Let's go to the add-on tab and we can see that we bought it at a multiple of 6. So there's a huge improvement there. You buy it at 6 times EV you sell it for 11 times EV, fantastic. In addition, buying the add-on allowed us to achieve some synergies and here they are.

That improves the cash flows coming from the add-on compared to what we bought it for. So if we go back to the three tab that IRR has improved compared to the base case, and we can say that the add-on has been a worthwhile purchase.