Sakhile Construction Business Plan — Returns

What the founders and growth equity investor earn across the horizon, and the return on capital deployed.

Returns

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Measure	Value	Basis
Founder equity	R3.20m	At inception
Growth equity	R6.50m	At Year 3
Total equity subscribed	R9.70m
Shareholders’ funds at Year 5	R6.78m	Net asset value; below the subscription
Year 5 EBITDA	R3.52m	At a 6.8% margin
Net debt at Year 5	R7.83m	Asset finance and facility less cash
Enterprise value at a 4.0x exit	R14.08m	Applied to Year 5 EBITDA
Terminal equity value at that exit	R6.25m	Enterprise value less net debt
Project IRR	4.3%	On free cash flow to the firm with a terminal enterprise value
Equity IRR	-11.5%	On the two subscriptions with the terminal equity value
Exit multiple at which equity returns its subscription	4.98x	Net debt plus subscription, over Year 5 EBITDA

Exit multiple	Enterprise value	Terminal equity	Project IRR	Equity IRR	Money multiple
3.0x	R10.56m	R2.73m	-10.5%	-30.3%	0.28x
3.5x	R12.32m	R4.49m	-2.5%	-19.4%	0.46x
4.0x	R14.08m	R6.25m	4.3%	-11.5%	0.64x
4.5x	R15.84m	R8.01m	10.4%	-5.1%	0.83x
5.0x	R17.59m	R9.77m	15.8%	0.2%	1.01x
5.5x	R19.35m	R11.53m	20.7%	4.8%	1.19x
6.0x	R21.11m	R13.29m	25.2%	8.9%	1.37x

The equity does not recover its subscription within the plan period below an exit of five times

Two things drive that. Cumulative losses of R2.85 million to Year 4 consume a third of the equity before the business turns profitable, and R11.48 million of debt sits ahead of the equity at exit against R3.65 million of cash. At four times Year 5 EBITDA the terminal equity value is R6.25 million against R9.70 million subscribed — a money multiple of 0.64. It takes 4.98 times for the equity simply to get its money back and roughly six times to earn a single-digit return. That is not a criticism of the plan; it is what a five-year window shows for a business whose value is being built in the grade, the systems and the record rather than in the earnings. A grade 6GB contractor with an unblemished final-account history, a functioning estimating department and a maintained retention register is worth materially more in Year 8 than the Year 5 balance sheet suggests, and the founder’s return includes a market salary drawn from Year 1 within the directors’ line. An investor requiring a five-year cash return should not be in this transaction.

19.1 What the value actually is at Year 5

Asset	Year 5 position	Comment
CIDB Grade 6GB registration	Held on both capability tests	Takes five years to build and cannot be bought
Completed contract record	Eighteen contracts a year, none loss-making at final account	The works capability that supports the next grade
Order book and client relationships	R52.00m of annual turnover, 53.8% public	Repeatable and grade-building
Estimating and quantity surveying function	R810 000 of annual cost, established	The function that determines margin in this sector
Plant, vehicles and equipment	R4.99m net book value	The smallest component of what is being valued
Working capital position	R9.62m, funded	What an acquirer would otherwise have to put up

A buyer acquiring this business at Year 5 is buying a graded, systematised contractor with a funded working capital position and a record that permits it to bid work most of its competitors cannot. The plant is R4.99 million of that; the rest is the grade and the organisation. Whether that is worth four times EBITDA or six is a judgement about the construction cycle rather than about this business, and it is the single largest determinant of the equity outcome.

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