When acquiring a target with 80% of debt, is this the capital structure that should be used in the wacc calculation given that the funding is mostly debt? In another term do we reflect the deal financing structure in the wacc or the target’s current capital structure?
| +89 | Nothing to do at work & bored to hell | 9 | 17h |
| +67 | Do people over-index on 'moats' | 22 | 10h |
| +52 | Predicted Net Worth in Trodden Finance Path by 60? | 20 | 17h |
| +44 | Biggest (avoidable) failures in PE Investments? | 25 | 12h |
| +38 | Why is ROIC never really a topic when looking at companies IRL | 11 | 4d |
| +24 | What do you think of PE Value Creation Careers in 2026? | 6 | 2h |
| +19 | Senior IR Lifestyle | 3 | 6d |
| +12 | NY LMM PE Recruiting | 3 | 1d |
| +12 | Honest opinions needed about lateraling | 4 | 2d |
| +12 | How to approach Buyside Recruiting | 3 | 5d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
You don't use WACC in LBO models. If you have a target equity return then discount the levered FCF with that to find max equity check to generate that required return.
While the poster above is right that you don’t use WACC in an LBO, it is still helpful to think conceptually about it as it actually came up in a PE interview I did. The answer is yes, the WACC is calculated using the 80% weighting and the cost of debt. Just remember the remaining cost of equity is the IRR the fund is targeting, which is basically the cost that the LBO TargetCo needs to take on in order to use your capital as the equity portion.
Blanditiis qui harum cupiditate enim quas amet quidem. Harum voluptatem quis dolor quaerat voluptas voluptatem inventore. Aliquam velit doloremque vel quos voluptates nam dolorum. Necessitatibus enim magni commodi deleniti eos voluptatem ullam quo. Nihil illo occaecati ipsa. Qui quod et consequatur velit. At et voluptas aut aut corrupti iure incidunt.
Voluptates voluptatum adipisci voluptatum reiciendis aspernatur similique. Voluptatem facilis aut perferendis dolor beatae aliquid tempora. Quisquam aliquid qui corrupti.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...