Minimum Cash Balance / Effect on Equity and EV - LBOs
Hi all,
I'm having trouble understanding what happens with the min cash balance during a LBO.
Example Scenario
EBITDA = 10m, EV = 10x / £100m, existing debt = £20m, existing cash = £30m (£25m is excess, remainder min cash).
Assume the buyer takes on existing debt and cash on balance sheet and no new debt raise.
My Indicative S&U
Uses = Equity value / offer : 110m (100-20+30), Existing Debt: 130m === TOTAL 130m
Sources = Excess Cash: 25m, Sponsor Equity = 105m === TOTAL 130m
Is this this correct? My key issue is I don't understand what happens with the minimum cash - why are we paying the seller more for the minimum cash if it's considered part of the core operations and should already be reflected in the EV? Should the offer value be £5m less?
Thanks for any guidance!
Magnam non quia maxime delectus. Qui sint exercitationem at perspiciatis voluptas. Et cumque porro doloremque et voluptatem et consequatur. Explicabo illum in harum omnis consequuntur dolor quod qui. Dolorum neque commodi et nihil sit.
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...