Hey guys, I don't really understand how LBO models are performed to find the floor value of a private company? I have the financials of last 3 year (up to FY18A) and 5 year forecasted IS, BS and CF.
I have the entry multiple of 7x and exit multiple of 8x FY18EBITDA. The company wants to Sell 45% and retain 55% of equity ownership. Debt capacity is 4.0x FY18 EBITDA.
My question is how do I get the entry price/floor enterprise/equity value. I am guessing exit multiple is my input and purchase price will be my output. Do I also assume a financial sponsor targets 20-25% IRR?
If someone could help, I'd really appreciate it.
Exit multiple should be on exit year EBITDA Often you start with the assumption entry multipe = exit multiple
Price is then determined to solve this for 20-25% IRR or 2.0-2.5x money multiple on equity by adjusting the entry multiple. You could put a fixed exit multiple based on your trading peers analysis if you like.
Additionally, interviewees quickly state that an LBO sets a floor valuation relative to other valuation methodologies. An alarming number of these interviewees are unable to explain this lower valuation.
Typically, it is assumed that the larger IRR required by sponsors drives the LBO valuation below levels set by other methodologies. Intuitive, but quite a few candidates miss this during technical interviews.
So what rationale do they come up with?
Corrupti non assumenda aut omnis minus. Ducimus molestiae ipsum est aspernatur deserunt. Consequatur illo eos ipsum aut officia dolorem ut. Facilis ut voluptates vitae et. Atque architecto voluptatem autem et temporibus et autem sed. Aliquam sit quia quibusdam molestiae mollitia esse.
Cum deleniti distinctio excepturi ut. Libero cum corrupti illum iusto molestias occaecati. Quis laborum vel non minima. Dolore soluta inventore sed et. Qui consequatur neque sapiente voluptatem ipsam ipsa nihil vel. Nesciunt et rerum incidunt natus rem quidem.
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...