Domain: Finance
Question:
IQVIA recently reported FY2024 results. The company is evaluating the $6.0B acquisition of “HealthDataCo,” a provider of real-world evidence platforms. Assume the deal closes at the start of FY2025, funded 50% with cash and 50% with new debt.  

Base year is FY2024 (HealthDataCo, stand-alone): Revenue $1.5B, EBITDA margin 28%, revenue growth 6% annually. Capex 3% of revenue, depreciation 2% of revenue, tax rate 25%.  

Synergy plan:  

Cost synergies: $150M in 2025, $250M in 2026, $300M in 2027.  
Revenue synergies: $200M incremental revenue in 2026, $400M in 2027, with 40% EBITDA flow-through.  
Integration costs: $200M in 2025 ($120M cash, $80M non-cash write-off) and $100M in 2026 ($70M cash, $30M non-cash write-off). Treat non-cash items as excluded from FCF.  
Working capital: model based on balance sheet ratios (Accounts Receivable = 12% of revenue, Accounts Payable = 8% of COGS, Inventory = 3% of revenue). Compute year-over-year change in balances as ΔNWC.  

Present financial figures in millions, rounded to the nearest whole million. Percentages should be rounded to one decimal place.  

Tasks:  

1. Calculate HealthDataCo’s standalone Free Cash Flow for 2024, then build a projection of Free Cash Flow pro forma with synergies for 2025–2027. Model revenue, EBITDA, D&A, EBIT, tax, net income, capex, depreciation, integration costs (cash vs. non-cash), working capital (using AR, AP, inventory), and free cash flow. Present free cash flow as a simple bridge from operating profit down to cash generation each year.  

2. Layer in debt funding: $3B new debt at IQVIA’s weighted average interest rate. Model recursive interest expense (interest based on average debt balance). Show impact on net income. Use IQVIA’s FY2024 effective tax rate for the interest tax shield; keep the 25% tax rate for HealthDataCo operating taxes.  

3. Compute ROIC (2027) as NOPAT (2027) divided by average invested capital across 2026–2027. Define invested capital as $6,000M plus the working-capital balance tied to revenue synergies (cumulative). Exclude goodwill and any debt tax shield. Calculate EVA (2027) using WACC = 8.0% and the same average invested capital used for ROIC.

Expected points in a correct answer:
States Base Year (2024) Revenue as $1,500M.
Calculates Base Year (2024) EBITDA as $420M (range: $400M–$440M).
Calculates Base Year (2024) Depreciation as $30M (range: $29M–$31M).
Calculates Base Year (2024) EBIT as $390M (range: $370M–$410M).
Calculates Base Year (2024) Tax @ 25.0% as $98M (range: $93M–$103M).
Calculates Base Year (2024) NOPAT as ≈ $293M (range: $278M–$308M).
Calculates Base Year (2024) Capex as $45M (range: $42M–$48M).
States Base Year (2024) ΔNWC is $0M.
Calculates Base Year (2024) FCF as $278M (range: $263M–$291M).
Calculates Pro Forma Revenue for 2025 as $1,590M (range: $1,510M–$1,670M).
Calculates Pro Forma Revenue for 2026 as $1,885M (range: $1,796M–$1,985M).
Calculates Pro Forma Revenue for 2027 as $2,187M (range: $2,081M–$2,300M).
Calculates Pro Forma EBITDA for 2025 as $595M (range: $564M–$624M).
Calculates Pro Forma EBITDA for 2026 as $802M (range: $764M–$844M).
Calculates Pro Forma EBITDA for 2027 as $960M (range: $913M–$1,009M).
Calculates Pro Forma Depreciation for 2025 as $32M (range: $30M–$34M).
Calculates Pro Forma Depreciation for 2026 as $38M (range: $36M–$40M).
Calculates Pro Forma Depreciation for 2027 as $44M (range: $42M–$46M).
Calculates Pro Forma EBIT for 2025 as $563M (range: $534M–$590M).
Calculates Pro Forma EBIT for 2026 as $764M (range: $728M–$804M).
Calculates Pro Forma EBIT for 2027 as $916M (range: $871M–$963M).
Calculates Pro Forma Tax @ 25.0% for 2025 as $141M (range: $134M–$148M).
Calculates Pro Forma Tax @ 25.0% for 2026 as $191M (range: $183M–$202M).
Calculates Pro Forma Tax @ 25.0% for 2027 as $229M (range: $218M–$240M).
Calculates Pro Forma NOPAT for 2025 as $423M (range: $400M–$442M).
Calculates Pro Forma NOPAT for 2026 as $573M (range: $545M–$603M).
Calculates Pro Forma NOPAT for 2027 as $687M (range: $654M–$722M).
Calculates Pro Forma Capex for 2025 as $48M (range: $45M–$51M).
Calculates Pro Forma Capex for 2026 as $57M (range: $54M–$60M).
Calculates Pro Forma Capex for 2027 as $66M (range: $63M–$69M).
Identifies cash Integration costs for 2025 as $120M.
Identifies cash Integration costs for 2026 as $70M.
Calculates Pro Forma ΔNWC for 2025 as $8M (range: $7M–$9M).
Calculates Pro Forma ΔNWC for 2026 as $23M (range: $21M–$25M).
Calculates Pro Forma ΔNWC for 2027 as $24M (range: $22M–$26M).
Calculates Pro Forma FCF for 2025 as $278M (range: $265M–$290M).
Calculates Pro Forma FCF for 2026 as $461M (range: $440M–$482M).
Calculates Pro Forma FCF for 2027 as $642M (range: $611M–$673M).
Identifies new debt as $3,000M.
Identifies the interest rate basis as IQVIA's weighted average interest rate (≈4.69%).
Models interest expense on new debt as (IQVIA weighted average rate) × average debt balance; computes ≈ $141M.
Calculates the interest tax shield as ≈ $25M (range: $24M–$26M).
Calculates after-tax interest as ≈ $116M (range: $112M–$120M).
Calculates Net Income (post-interest) for 2025 as ≈ $307M (range: $295M–$319M).
Calculates Net Income (post-interest) for 2026 as ≈ $458M (range: $446M–$470M).
Calculates Net Income (post-interest) for 2027 as ≈ $572M (range: $560M–$584M).
Calculates Average Invested Capital (2026–2027) as $6,030M (range: $6,000M–$6,150M).
Calculates ROIC (2027) as ≈ 11.4% (range: 11.2%–11.6%).
Calculates EVA (2027) as ≈ $206M (range: $200M–$210M).