Reverse multiple expansion
Is it possible that in an heavily leveraged LBO (around 15% equity only) a PE might buy the target at lets say 15 ev/ebitda multiple. then because of huge potential on reducing cost and partially increasing revenue sells it around ev/ebitda 8 in 5 years for example... could this be theoretically feasable? lets say ebitda gows in 5 years by almost 80%
thanks
Depends on how much cash the business generates. Your exit TEV would be below your entry purchase price, so your returns would effectively all come from deleveraging.
Could be possible I guess given the small initial equity check, but my intuition is it'd be tough to make the math work. That's a lot of multiple contraction...
that is called multiple contraction... not reverse multiple expansion by the way
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