Once you have a functioning lbo model, with the EBITDA multiple as an input and IRR as an output, whats the best way to turn it around to ask the question- if this is the required IRR, what is the multiple? I tried goal seek on the IRR using the purchase multiple as the input, but get ridiculous answers. Thanks
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For a given level of debt, you don't need to include the purchase price in your calculation. Take the exit enterprise value and subtract ending debt to get the exit equity value. Assuming you're looking at 5 years and a 20% target IRR, the initial equity value=exit equity value/(1.2^5). Add the amount of initial debt you can get to get the implied purchase EV.
Thanks. That worked although I also had to also subtract the fees to get there
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