LBO Technicals from EB (Please help)
I can't figure these out, would appreciate help from someone with more experience on how to think through them.
given a 12x entry, 10% margin, 0% cash conversion, 5 years time, 10x ebitda, 14% cagr, 100% equity: what is the IRR?
A and B own 50% each of a company. Ebitda 50mm, 10x multiple, A wants to buy B's 50% stake for 25mm. Leverage ratio is 3x. rest is funded by PE Firm P. What is P's share of company? 5 years later, PE Firm X wants to buyout company. ebitda is 150mm, 20x multiple. what is P's IRR?
margin isn’t needed. no debt, just so 10* (1+.14)^5 divided by 12x....ebitda simplifies to 1. the MOIC or MoM is 1.6x and that means IRR is about 10%.
first these numbers are crazy, second I think you mean the price is $250 (not 25) not sure how realistic it is otherwise. so half the ebitda at 3.0x leverage implies 75 debt and 175 equity. equity is 50% *70% = 35%. year 5 means there is $2,925 equity multipled by 35% gives a 5.9x multiple or 42% IRR. assumes no cash buildup and is used to pay the debt which is assumed to be non-amortizing. unrealistic because of multiple expansion and ebitda growth all at once I would say, in general
could you explain why you do 35% * 2925? I thought 35% was P's share of the overall company, but 41% (175/(175+250)) was P's share of equity. And since 2925 is the exit equity value, wouldn't P's share of equity be 2925*41%? Thanks for your answers though, really helpful.
I understood his explanation as P technically owning half but, in reality only 70% of that half is representative of their own money, thus, the 35%. When the exit equity value of $2,925 is assessed, that 35% stake of "real" money is reflected by multiplying the two. From there, you calculate a MoM multiple and ultimately arrive at IRR (although idk how you can mentally compute this).
yes 35% is the overall share of the company. you value the whole company at the end to get the exit value
Hey, how were you able to find those IRR values? I can't seem to find a quick way to calculate them mentally
no quick way for this. too non linear of a function and rules fall apart at such a high multiple.
I come to the same numbers that you have but curious how you calculate IRR if it is done without a calculator.
wish I had a better answer but used my phone for that part
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