Hi all,
I have a question relating to the sources and uses in an LBO-model.
Let's take a hypothetical transaction (on a cash and debt free basis):
Enterprise value: 100m
Cash: 2m
Debt: 10m
= Equity value: 92m
The total debt can be specified into:
Bank debt: 7m (must be refinanced as part of the transaction)
Other debt: 3m (could be any debt/debt-like items that does not need to be refinanced, e.g. capex underspend, dividend payable, trade payables due by more than >120 days, etc.)
My question is now, what goes into the sources and uses of the LBO? Is the below the correct way to look at it?
Uses:
Purchase of equity: 92m
Refinancing of debt: 7m
Other debt assumed: 3m(???)
Total uses: 102m
Sources:
Cash: 2m
Other debt assumed: 3m(???)
Equity contribution + acquisition loan: 97m
Total sources: 102m
Guess I am not exactly sure on how to treat assumed vs. refinanced debt.
How some of you guy can help me out!
Thanks in advance!
If the debt is assumed (i.e. not refinanced or paid down) it should not should up in S&U.
Sources should be:
Cash: $2 Sponsor equity: $97 Total : $99
Uses should be:
Purchase price of equity: $92 Refinancing of term loan: $7 Total: $99
EDIT: Probably makes more sense to include it in purchase price of equity, actually, so both sides are still $102 but sponsor equity goes up
How is an LBO model used in IB? (Originally Posted: 03/31/2017)
I am going to be doing a valuation exam/case study for an IB position and inclusive in the valuation portion is an lbo model. Can someone help explain how an LBO model is used as a valuation technique. Is there a way in which IB's use an LBO model for valuation without knowing the potential debt/equity split and sources/uses of funds?
I feel like I would be able to build the model from the PE perspective just by making assumptions but I am a bit confused how it should be presented from an IB perspective. Any and all help is appreciated.
bump
You can check you this book, it's cheap and there is everything you need to know to rock your exam/case study, it's written by investment bankers, not professors, so it gives a much more "real" explanation with examples as well. Good luck!
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