Take Private Case Study Question
Doing an entry level PE case study and just wanted to check whether my approach to valuation is correct with the wider community.
It's a take-private situation where I need to figure out the entry purchase price and multiple. No comps are given. I only have share price trading history, financials and broker reports.
For my entry valuation, I have assumed a premium to the latest trading level of 30%, multiplied by the total number of shares outstanding and added net debt, which gave me the entry enterprise value.
Is my approach broadly correct?
Thanks a lot!
No. The point of the LBO is to calculate what you can acutally offer to make a pre-set return (e.g. 25% IRR on equity). So the offerprice is the plug (the result), not an assumption.
Well adding my 2 cent I'd say the author's approach is not wrong - after computing entry EV/EBITDA and applying that mult to exit EBITDA you will be able to compute IRR and create a quick sensitivity table - sensitizing IRR to various entry and exit multiples. That information can already give you a good idea what should be the price for 25% IRR. Or am I missing something?
Author approach is fine as long as you have sensitivity on premium / implied entry multiple. If you’re given an explicit entry multiple then the point is to output IRR and assess if it’s a good deal for that price.
if you’re not given an explicit price, then you’re better off setting a levered IRR, assuming leverage assumptions, and then finding the implied “highest Price” you can afford to pay to get that return (an affordability analysis).
do u need help sourcing comps EV/EBITDA + Precedent transactions EV/EBITDA to rationalize a multiple and valuation? I can show you how to source that for a given company pretty easily in public filings.
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