February 2018
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Leverage Academy instructors leverage their experiences to create "real life" case study applications for undergraduate, graduate, and professional students:

  • Equity Capital Markets Cases (IPOs, Follow-On Offerings, 144A Private Placements)
  • Investment Grade Debt Cases (Corporate Debt Issuances for High Grade Issuers)
  • M&A Cases (Carve-outs, Strategic Sales, Financial Acquisitions)
  • Private Equity Cases (LBOs, MBOs, Roll-ups, Dividend Recapitalizations)
  • Restructuring Cases (Ch.7, Ch.11, In-Court, Out-of-Court, Prepacks, Prenegotiated)
  • Investment Memos (Why would you invest in XYZ company?)
  • Trading Cases (What makes this a good trade, and why?)
  • Market Sizing Cases (How would you assess the global demand for this raw material?)

Case Studies


NetSpend Skyrockets After IPO!

Who would have thought that a prepaid card manufacturer could reach a $1.2 billion valuation?

IPO Details

On October 19th, NetSpend Holdings (NASDAQ: NTSP), a marketer and distributor of prepaid debit cards, was able to complete a successful $204 million initial public offering, rising over 18% in its first day of trading. The IPO was one of the most successful of the summer. Shares of NetSpend jumped to almost $14 on October 20th from their initial $11 IPO price. The IPO proceeds were used by Oak Investment Partners to cut the investment firm’s stake in the company from 47% to 39%.

The company sold 18.5 million shares on the 19th, after pushing back the date of its debut due to the investigation of its customer Metabank by the U.S. Office of Thrift Supervision. Competitor Green Dot Corp., the largest provider of prepaid debit cards has rallied 35% since July. On the other hand, Meta Financial has fallen 60% since it was forced to shut down one of its credit card programs.


According to Rolfe Winkler of the Wall Street Journal, investors were paying $550+ apiece for each share of NetSpend purchased through its IPO. Netspend has an enterprise value (BEV) of about $1.2 billion, which implies a $590 valuation on its cards, whereas competitor Green Dot is valued at $630+ per card. One reason for the high valuation may lie in the fact that pre-IPO investors cannot sell their stakes until April 2011.


The risk in investing in NetSpend lies in the fact that the company’s processing fees per card provide only $11 in revenue per month. Marketing and distribution expenses are fairly high as well, and customers also only use cards for 1 year before cancelling. Churn is a significant issue for the company. This is why the company’s EBIT or operating margin is only about 15%. Due to the emergence to competitors and market saturation, NetSpend’s growth has decelerated from 50% in 2006 to 20% in 2009.

Business Model

Since 2005, there have been a number of prepaid card providers that have emerged and have been targeting low income consumers underserved by banks. NetSpend has about two million active cards and is the second largest player in the United States with 40% market share. It attracts customers by promising no overdraft fees and minimum balances. As more banks turn away from low income customers, there may be potential for continued growth in this market. The company claims that $7.6 billion in transactions were made using its cards in 2009.

NetSpend cards are sold at 39,000 retail store locations and are used by 800 corporate employers who use NetSpend cards to pay employees without bank accounts. The cards are also FDIC-insured and are Visa & Mastercard branded.


Approximately 25% of households in the United States are underbanked, and are searching for alternatives to traditional bank accounts. The industry has growth at a CAGR of 49% from 2005 to 2009 and has reached a market size of approximately $300 million. The business is also scalable, with industry average EBITDA margins at 25%.


a) What do you think the growth prospects are for NetSpend?

b) What has Green Dot suddenly surpassed the company in terms of market share?

c) What are the main risks of investing in the company?

d) If payday lenders also participate in this market, are there any regulatory risks to NetSpend?

e) What role does MetaBank play in this case?

f) What are the two or three ways one could value Netspend?

g) Construct a model for one of the valuation methods above.

h) Who would be willing to spend more on NetSpend, a strategic or financial buyer?

i) If a private equity firm were to purchase NetSpend, using 5.0x total leverage, what would be the IRR %, assuming the deal is 2.0x Senior and 3.0x High Yield at LIBOR + 300bps and 11%, respectively? j) Why don't banks try to compete with NetSpend?

k) Why can't pre-IPO investors divest of their shares?

Companies Highlighted: NetSpend, Green Dot, MetaBank

Burger King Takes Over Wendy's Arby's Group

Assume Burger King's CEO, John W. Chidsley, whose performance hasn't been spectacular in 2010, decides in a frenzy that he has to do something soon to improve shareholder value, otherwise he will be ousted. Mr. Chidsley decides to purchase Wendy's Arby's Group, a fast food and beverage business with growing revenues but no profits. After getting approval from his Board of Directors, the CEO hires you Mr. Knowitall from Bulge Bracket Bank, Inc. to conduct a valuation and explain to the board how the merger would be executed, what the earnings impact would be, and how the firm would pay for the takeover attempt.

Conduct a full valuation: discounted cash flows, comparable companies, precedent transactions, and premiums paid. Assume that synergies are approximately 10% of sales and that restructuring charges will be $25 million. Use company 10-Ks and Qs for financial information, and make sure to use LTM numbers

Do you think that Mr. Chidsley should instead increase BK's dividend, announce a share repurchase program, or find another target? Explain.

Companies Highlighted: Burger King, Wendy's Arby's Group


Management Buyout

The Senior Vice President of a industrial conglomerate gives you a call on a Friday afternoon, just as you are about to leave the office to go golfing with your associates. His company is in trouble, since margins have compressed over the past year, customers have defaulted on their accounts, and the business may be in a cash crunch soon. The SVP runs a subsidiary of the conglomerate, a contract manufacturer of pipe insulation in Canada.

Since the parent company cannot raise senior bank debt, he has offered to partner with a middle market private equity firm to take the insulation subsidiary private, providing liquidity for the parent company. The management team of the subsidiary would receive warrants in the transaction and would be able to invest their own capital into the deal to ensure that their interests are aligned. The parent company is also financing the transaction with seller paper, to ensure that the deal does not sour.

Using the information provided in the case study financials, build an LBO model with at least three scenarios and sensitize purchase price, total debt employed, and EBITDA growth.

Company names included in case study.