I know this has been posted about before but I still can't make sense of this. I am working through the PE guide's Full LBO model Example 2. In the prompt, it is written that the deal will be done on a cash-free debt-free basis. The EV of the Target is 325, and debt prior to transaction is 100 and cash is 40 in the Target.
Other assumptions: - Minimum cash = 5 - Advisory fees = 20 - Financing fees = 4
- New debt as part of LBO = 207
- Sponsor equity = 158
What I don't get is the answer key's S&U table. It looks like this:
Sources - Debt = 207 - Cash acquired = 40 - Sponsor equity = 158 Total = 404
Uses - Min cash = 15 - Purchase price = 265 - Extinguish debt = 100 - Fees = 24 Total 404
Question 1: In what way are the sellers getting the excess cash here? why call cash "cash acquired"? isn't the cash given to the sellers?
Question 2: what is the difference between the debt free cash free value and EV?
