I am working on an equity research report for my school's investment fund and want to value my stock using an LBO analysis. I have built numerous LBO models in prior internships and know how to calculate an Enterprise Value from it. I do not, however, know how to walk from Enterprise Value to MarketCap. Would I add the cash and subtract the debt of the Pro-forma capital structure? Or would I using the existing structure? What other considerations need to be made?
Would it even make sense to use an LBO analysis for this purpose? I mainly want to do an LBO because the company was previously subject to a couple of LBOs before going public and I feel like it might be relevant. Thanks!
Based on my experience, an LBO tab has always been included within valuation excel models. It simply serves as another data point in determining a valuation range.
As to your other question, what is the purpose of deriving a share price for your analysis? This may assist in determining whether to use the pro-forma or existing capital structure.
Generally, you wouldn't do an LBO model for investing in a listed company. In fact, I haven't seen it done in any research reports I've read. Relative value (multiples) and DCF is most common. Sum of the parts where business units are quite separate or they have significant non-core assets.
Why do you want to do an LBO? If you're trying to show a potential premium from an institutional acquirer, I guess that could have some merit to an investment case. Then you would use the current cap structure to get to equity value, as that's what you would get as a minority holder.
That answers my question, thank you!
As for the other part, I just wanted to do an LBO valuation because it was a portfolio company of multiple PE shops before going public. Also, it's single largest shareholder is a PE group.
I was planning to see what kind of premium a PE group would be willing to pay to achieve their IRR. I thought all of this would make an LBO valuation relevant, but maybe not so much now.
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