Leverage for a Capex-intensive business
Currently preparing an LBO for a quite capital intensive business. EBITDA is roughly 40m USD but Capex and D&A is roughly 20m every year so EBIT or (EBITDA - Capex) is only 20m.
Businesses in the industry are usually valued on an EBIT or (EBITDA-Capex) basis. My VP is maintaining that leverage for the purpose of our LBO will be based on EBITDA. This leads to very high leverage and IRR in our analysis. To illustrate see the example below:
EBIT 22E: 20m
Entry multiple: 11x
EV = 220m
EBITDA 22E: 40m
Leverage: 4.0x = 160m
My question: would banks/ debt funds really look at EBITDA or rather look at EBIT or a cash flow metric for the purpose of financing offers?
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