how does LBO analysis imply a share price?
I'm new to LBO
in a LBO analysis, where do you find the minimal price that an acquirer would pay for a company?
Can I use total uses of funds/shares outstanding as the implied share price?
Trending Content - Investment Banking Forum
| +137 | Piper Sandler in talks to acquire PWP | 61 | 4h |
| +125 | Interns without return offers, careers & perspective | 11 | 8h |
| +114 | UBS Appears to be Exploring Sale | 14 | 11h |
| +102 | Just One More Year | 11 | 2d |
| +82 | Are all these UBS postings bullshit? | 21 | 10h |
| +70 | Bringing Deals as a Vice President | 20 | 10h |
| +66 | Paradise Is Paradise | 5 | 16h |
| +37 | Q&A | Investment Banking Analyst, UBS | 2 years in investment banking | 11 | 1d |
| +35 | Q&A | Incoming Associate, Bulge Bracke, AMA: Career switcher (tech sales/BD → MBA → BB TMT IB), return offer | (6 years in Tech/Accounting) | 6 | 4d |
| +32 | M&A is Paradise | 1 | 2d |
Career Resources
Usually share price is irrelevant because you're placing a purchase price on the business itself as a whole so I don't really understand your question.
Once you have an EV range, you can easily compute per share purchase price.
In a lbo model, equity price is more of an assumption than a result. By assuming an equity price, you can calculate what kind of level of debt (and in what form) the business can sustain
I disagree. Debt capacity depends on cash flows, not on equity. That's why you can infer a share price - you look at the cash flows of the business and decide how much/what type of debt you can put in the company, then see what the maximum price you can pay is given those assumptions. Obviously there are other assumptions too such as earnings growth, net working capital and exit multiple that all affect your maximum price.
Just some thoughts. The LBO model allows you to assess the maximum price you can pay in order to achieve the minimum IRR which your PE firm requires e.g. 20%. Based on your valuation, you should obtain a range of fair values for the company.
Just to write some numbers for illustration. Assuming that the company share price is trading at $20/share.
Based on your LBO model,
if the maximum price you can pay is $15 to achieve IRR of 20% -> Do not buy the company if the maximum price you can pay is $21 to achieve IRR of 20% -> The price you can pay is $20 to $21 if the maximum price you can pay is $23 to achieve IRR of 20% -> The price you can pay is $20 to $23
Do let me know if it answers your question
You run analysis based on finding an EV range that satisfies returns bogey. Once you have a range of transaction values, you know your min and max purchase price that makes the math work. From EV, you can calculate equity value, and thus, price per share.
The share price is an input to the lbo model, you have to model in an assumption for the price you pay to buy out current equity holders (whether public or private) in order to calculate IRR.
If you are a PE firm, you are asking yourself how much am I willing to pay for the business (Enterprise value) and then from that you determine what you'd be paying to the current equity owners. If it's public you'd be looking at what share price that analysis implies.
If you are doing an LBO analysis for the purposes of valuing a company, you would think the same way as the PE firms - you would calculate the EV and thus equity value that would allow a sponsor to earn an acceptable return.
In an lbo model, equity price is more of an assumption than a result. By assuming an equity price, you can calculate what kind of level of debt. You can try some good videos for a clear picture. I can recommend Bluebook Academy..
Numquam ea accusamus molestiae ipsum. Quis laborum dignissimos repudiandae praesentium. Tempora fugiat non voluptas pariatur sed voluptas. Vero quae pariatur qui cum quia.
Omnis tempore est ut vitae nemo omnis. Voluptatem suscipit ex placeat. Aut quod quo qui qui et doloribus nostrum.
Dolores tempore dolores similique soluta aperiam ducimus. Velit est quia animi repudiandae nisi. Consequatur saepe dolores iusto aliquid qui tempora. Libero dolore non autem mollitia.
Illo maiores pariatur voluptas libero rerum incidunt autem eius. Deserunt numquam ut qui eligendi et quibusdam. Ipsa dolor quidem voluptatem dignissimos qui et vero. Ut pariatur fuga suscipit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...