LBO questions

Based on the most helpful WSO content, here's a detailed breakdown of the LBO scenario provided:

Given Data:

• Purchase Price: 10.0x LTM EBITDA
• Debt Capacity: 6.0x LTM EBITDA
• LTM EBITDA: $300mm
• Sponsor Achieved Rate of Return: 30%
• Tax Rate: 21.0%
• Holding Period: 5 years
• Exit Multiple: 10.0x LTM EBITDA
• No principal repayments during the 5 years

Calculations:

1. Initial Sponsor Equity Investment ($mm):

   • Total Purchase Price: 10.0x * $300mm = $3,000mm
   • Debt Financing: 6.0x * $300mm = $1,800mm
   • Equity Investment: $3,000mm - $1,800mm = $1,200mm

2. Achieved Year 5 EBITDA ($mm):

   • Assuming EBITDA remains constant at $300mm (as no growth rate is provided).

3. Transaction Value at Sale ($mm):

   • Exit Multiple: 10.0x
   • Transaction Value: 10.0x * $300mm = $3,000mm

4. Proceeds to Sponsor on Sale ($mm):

   • Debt Outstanding: $1,800mm (no principal repayments)
   • Equity Value at Sale: $3,000mm - $1,800mm = $1,200mm

5. Sponsor Multiple on Invested Capital (x):

   • MOIC (Multiple on Invested Capital): $1,200mm / $1,200mm = 1.0x

Summary:

• Initial Sponsor Equity Investment: $1,200mm
• Proceeds to Sponsor on Sale: $1,200mm
• Transaction Value at Sale: $3,000mm
• Achieved Year 5 EBITDA: $300mm
• Sponsor Multiple on Invested Capital: 1.0x

This scenario assumes no growth in EBITDA and no principal repayments on the debt, leading to a straightforward calculation of the sponsor's return.

Sources: SaaS LBO, How Private Equity Owned Companies Fund Add-Ons, Sources and Uses statement - private LBO model, Thinking like an Investor: The key financial metrics, Sources & Uses - Private Co LBO