Paper LBO: Key Elements
Unlock all answers in this set
Unlock answersquestion
What will you be given in a paper LBO?
answer
1) Capital Structure (% debt vs. equity) for leverage 2) Duration of investment for IRR estimation 3) Projected EBITDA for FCF (may be given in the form of revenue, growth rate and margins) 4) Depreciation and amortization expense for tax calucation 5) Cost of debt for interest expense 6) Tax rate for taxes 7) Cash flow components: working capital, capex, etc. 8) Exit multiple for ending EV
question
How do you calculate to Free Cash Flow?
answer
EBITDA - D&A - Taxes - Interest Expense - Net Working Capital - Capex = FCF
question
How do you calculated ending equity value (\"E\")?
answer
E = ending Enterprise Value + debt - cash
question
What is the crux of the answer for the paper LBO?
answer
Ending Equity / Beginning Equity = Return
question
Purchase Price: 5.0x Debt-to-Equity: 40/60 Cost of Debt: 10% Next Year Revenue: $100 million EBITDA Margin: 40% Revenue Growth: $50 million every year Margin Growth: Estimated to stay flat Working Capital: Stays the same Capex: 20% of Sales D&A: $20 million every year Tax Rate: 40% Exit Time: 5 Years
answer
Approximate EV Multiple: 3.4x IRR: ~28% See Pg. 97 of Vault Guide for Detailed Answer
question
Purchase Price: 5.0x Debt-to-Equity: 60:40 Cost of Debt: 10% Next Year Revenue: $100 million EBITDA Margin: 40% Revenue Growth: 10% growth yoy Margin Growth: Estimated to stay flat Working Capital: Increase by $5 mil every year Capex: 15% of Sales D&A: $20 million every year Tax Rate: 40% Exit Time: 5 Years
answer
Approximate EV Multiple: 3.0x IRR: >25% See http://www.streetofwalls.com/finance-training-courses/private-equity-training/paper-lbo-model-example/ for detailed answer
