Choosing entry multiple for Cash Free Debt Free Transaction?
Does the amount of cash and debt that a company has on its balance sheet affect the entry multiple you use, assuming you structure it as cash-free debt-free? I know that how much cash/debt a company affects enterprise value, but in the case of an LBO model structured as cash-free, debt-free, how would it affect valuation/entry multiple?
Bump
EV is capital structure agnostic, so no effect
Woudn't the purchase enterprise value under cash free/debt free scenario be different from enterprise value under non cash free/debt free, as the seller has to assume net debt under the latter (which affect purchase enterprise value)?
Ev stays the same, if you're referring to the sources and uses table and the multiple of ebitda for the total sources or total uses, then yes it would change. That said, it doesn't rly matter, bc debt and cash just roll and become sources
Got it, that's helpful. Yes, the sources and uses is what I'm referring to (doing a case study where I have to build an LBO model), and might have to come up with reasoning for picking entry multiple. What would be the general framework for thinking about what entry multiple to go with?
Choosing the right multiple should be driven by analyzing the margin, growth, and scale of the target compared to the industry/historical multiples from past deals.
Do you have any access to prior deals in the industry and what multiples they were at?
Would pick multiple based on what type of IRR you’re looking for. In all cash no leverage probably you’ll want to pay a lower multiple.
Got it, and yes I do. I'm just still a bit confused on whether the LBO model is structured as a cash-free or debt-free deal should have an impact on what entry multiple I use?
Apologies if above was unclear: it doesn’t affect.
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