Majority Buy-Out PE
Hi all - appreciate it if anyone has an answer!
I came across a case where a PE buys 75% of a company, let's say purchase price has been agreed of 100 (EV, cash free debt free) and transaction fees of 10. I have secured financing of 50, what does my sources look like?
Scenario 1:
Debt: 50
Equity: 60
of which Management Equity: ((110-50))*25%= 15
of which Sponsor Equity: 45
Total: 110
Scenario 2:
Debt: 50
Equity: 60
of which Management Equity: ((100-50))*25%= 12.5
of which Sponsor Equity: 47.5
Total: 110
Scenario 1 sets the ownership in NewCo to 75/25% which comes in handy when you do exit calcs as the IRR is of course the same for the two parties. However, using scenario 2 and setting mgmt ownership to 25% at exit, IRR is slightly different (it is the same only when adjusting for the fact that sponsor pays the fees). As this is not a transaction with a management roll-over but was phrased as a majority deal, it seems plausible to me that the sponsor pays the fees but maybe it doesn't matter really?
Thanks a lot!
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