Executive Summary

A family-owned wine and spirits holding company was weighing the buyout of a majority ownership interest and wanted to understand how different debt structures would affect its future cash flows. Stout reviewed the company’s existing investment model, corrected the errors it identified, and extended the model into a tool that the finance team can run itself to price and stress-test capital structure alternatives. The buyout closed, and management used the model to structure the acquisition debt confidently and efficiently. We stayed involved well past the final turnover, fielding questions from the finance team and building additional functionality as their needs changed.

The Client

A family-owned holding company whose operating businesses include a premium spirits company, a fine wine importer, a wholesale distributor, and a diversified commercial real estate portfolio.

The Work

We carried out the engagement in three phases:

1. A health check of the client’s existing investment model, covering the logic behind its financial statements, investment analysis, and return metrics
2. Construction of debt structuring functionality, including instrument-level schedules, covenant ratios, business line and buyout scenarios, and the tax treatment of interest
3. Validation of the changes, verification of the outputs, and a walkthrough of the new functionality with the finance team

The Outcome

A single, dynamic workbook management can run itself, which shows how a given capital structure affects cash flow, covenant headroom, and equity value. The company went on to complete the buyout and used the model to set the terms of the debt that supported it.

How We Approached the Work

Model Health Check

The company’s existing investment model had been built to evaluate a single brand acquisition and was later adapted to carry the broader enterprise. We reviewed it for accuracy and internal consistency, tracing the logic through the income statement, balance sheet, cash flow statement, and working capital schedule, and testing whether the investment analysis and return metrics behaved the way management believed they did.

Financing mechanics were the clearest gap. The model only allowed for a single instrument with no way to introduce alternatives, and interest was calculated from the annual debt balances rather than from a repayment schedule, so management could not flex leverage, pricing, or amortization and see the result. Sensitivity analysis consisted of static grids covering revenue growth and exit multiples. We documented and corrected what we found and then gave management a summary of the adjustments before starting structural work.

Rebuilding the Model Around the Operating Businesses

We restructured the projection layer so each operating business and the real estate portfolio fed into the consolidated statements on its own line, drawing on the business-level forecasts that management provided. Revenue, cost of sales, direct and indirect operating expenses, corporate allocations, depreciation, capital expenditures, and working capital were each carried at the business level and aggregated into the three statements.

Management could include or exclude any business from the analysis with an on-screen toggle, and every downstream output repriced the financial statements, the covenant ratios, and the valuation scenarios. Corporate overhead sat in its own layer, with control over how much was pushed down to the businesses and whether the value creation and long-term incentive plans were treated as corporate cost.

Building the projections at the business level gave management the visibility that the consolidated view could not. It showed which businesses drive the consolidated result and let management see how the enterprise would look under different combinations of them.

Debt Structuring Alternatives

We worked through the structuring alternatives with management before building anything, covering which instruments the enterprise could support and how each would behave against the covenants that a lender would set. We built three financing instruments into the model, each with its own schedule: a term loan, a revolving credit facility, and a new mortgage. Each had adjustable principal, issue date, term, interest rate, and issuance cost assumptions, and each could amortize on a gradual payment schedule or repay as a bullet at maturity. The schedules ran monthly and rolled up into the annual statements, so interest and principal reflected actual payment timing. The revolver drew against surplus cash above a minimum cash requirement and was capped at an adjustable borrowing base.

Around the instruments, we built the tests a lender or a board would run:

• Leverage, interest coverage, and minimum liquidity ratios, each reported by year against an adjustable threshold
• Control over which instruments and which income streams enter the ratio calculation, so management can see how a covenant definition changes the answer
• An interest deduction limitation set as a percentage of EBIT, with non-deductible interest tracked separately and carried through to the tax provision
• Debt issuance costs capitalized and amortized over the life of the instrument
• Leasing commissions in the real estate portfolio capitalized and amortized over the lease term

Buyout Scenarios and Equity Value

The buyout scenario functionality carried its own inputs for purchase amount, closing date, and transaction fees, which flow through the cash flow statement and equity. We built two discounted cash flow scenarios so management could compare estimates around what the owner’s current stake would be worth if the buyout did not happen with what full ownership of the company would be worth if it did. The first scenario left the capital structure alone (i.e., assumed no additional debt is raised) and valued the owner’s existing majority stake. The second scenario raised the acquisition debt, closed the buyout at the elected date, and valued the interest once the owner holds the company outright, with the new debt service, the transaction costs, and the increase in ownership all running through the projections. Comparing the two showed whether taking on the debt left the retained interest better off than standing still, and management could rerun that comparison against any set of debt terms, projection inputs, and buyout assumptions.

Delivery and Handoff

Everything management adjusted sat on one dashboard that included debt terms, buyout assumptions, valuation inputs, the tax rate, and the projection drivers for each business, with the original forecasts held alongside for reference and a control that restored them. A single formatting convention marked what could be changed, calculation tabs were separated from output tabs and source data, and cells linked back to the inputs that drove them. The workbook opened on a table of contents and instructions page. 

We tested the completed model against the client’s original outputs and walked the finance team through the new functionality at delivery. We then went through a couple of rounds of review with management, tailoring the mechanics and the outputs to the way the finance team intended to use the model.

The engagement continued past that point. For months after the final model turnover, the finance team reached out with questions on the mechanics and with requests for updates as they desired additional functionality. We stayed involved after delivery, revising the model as the transaction progressed and management’s needs changed.

The Value Provided

The company could answer the financing question without commissioning a new analysis every time the structure changed. Management set the debt terms, chose which businesses and instruments belonged in the test, and saw the effect on cash flow, covenant compliance, and illustrative equity value.

In this case, the right approach was to build inside the client’s own workbook rather than hand over a replacement file. The finance team already knew the file, and the new mechanics followed its existing structure, so no one had to learn a different model to use it. Speed, complexity, and who will be running the model determined whether we extended what a client already had or built from scratch, and we settled that question with the client before any construction started. 

Our involvement was not limited to building the tool. We helped management think through the debt structuring alternatives and then equipped them to project each one. Our support gave management the visibility and confidence to weigh the alternatives and commit to a structure, and the finance team continued to bring us questions and requests afterwards. The workbook provided them with the analysis in house, and our continued role as a trusted advisor kept it current as the transaction and the business progressed.