Public company LBO minority stake
Was given the task to build a LBO model for purchasing a minority stake of a public company and have a few questions.
After calculating diluted shares after impact of options, market cap, EV etc; I am building a full LBO incl. leverage with the remaining stake "rolled over" in the both sources and uses. For the debt financing, making some assumptions on RCF, senior financing etc. - is this the correct approach? Thank you
I don't know if I would call it an LBO since it sounds like you're doing a PIPE. Haven't done a ton around these, but unless the company is fully recapping their debt structure as part of the transaction (probably not the case), you probably shouldn't assume LBO style debt, and instead just roll over the existing debt and cash structure. It will also depend on the use of funds. For instance, if you're investing $100M that's going to sit on the cash balance and will fund future growth, then whatever equity you're investing (net of fees) is gonna go straight to starting cash. Conversely, if you're taking out some piece of debt, then that would be reflected in your uses.
I'd assume you would agree to some valuation that would imply out your equity ownership %, so that should be simple to get down to your returns. Long way of saying it's pretty much like any other kind of minority investment except you're calculating valuation based on the FDSO.
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