LBO Levered FCF Yield Calculation

How do I calculate LFCF yield in an LBO - which equity do i use?


My understanding: taking LFCF and dividing by entry equity value in each year? or taking the sum of lfcf generated over the course of the investment an dividingf by entry equity value? or by the equity in the sources? thank you

 

Not sure why you would calculate yearly FCF yield. The whole point of a LBO is that you fix your required return (20-25% IRR on equity for buy outs of > 100m EV is quite common) and then use the price as the plug. FCF is completely irrelevant as it is driven by your amortization schedule of the debt facilities (so completely different if you fund the deal with a bond or with armotizing term loans), while the value generation could be very similar.

 

Can we please agree on the following:

- In its definition, LFCF yield would be calculate BEFORE debt repayment. You would sum these up throughout the holding period and divide by the sponsor equity from the Sources.

Rover-S you are correct, that it should be named Cash flow available for debt service, but for the sake of LFCF yield, all textbooks/ google says BEFORE debt repayment

 

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