How do you arrive at the valuation range running an LBO? I assume the standard way is using a range of IRRs (in this case, we are saying the valuation is between 25-30% IRR). I just have no idea how to back into the exact EV/entry multiple using the IRR.
Is this the way one generally uses an LBO model to value a company?
Thanks guys.
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Anyone have anything here? I'm basically looking for the "how" to getting the valuation range from an LBO on a "football field" chart.
Never used football food in LBO; whenever seen it put on a field with comps, DCF etc then assumed 25% IRR and reasonable debt structure.
I've always used IRR tables to compare entry/exit multiples with resultant IRR's and then work back to what entry multiple you have to use to generate subsequent IRR.
JP
jjpp, I'm trying to figure out the valuation we are getting from the LBO. I understand your method (and, at this point, it seems as though that's my only hope), but I figured there must be a more EXACT way of coming to the valuation. I have the sensitivity analysis set up and can see at which entry multiple the IRR is ABOUT 25-30%, but it's not exact. I know this is being picky here, but I'd rather have an exact number vs. "approximate" numbers (and I would prefer for it to be automated so I can avoid going back and forth in each iteration).
Tried goal seek, but that just doesn't work. Is there a more efficient way to use it? Or a way to use goal seek to return a multiple that achieves an IRR of 25.0-25.1%?
Feel like missing you here. I have an entry multiple IRR sensitivity in front of me and can see where it is 25.0% and automatically updates as change cap structure. Don't see how you can have built a sensitivity table where IRR is about x or y. If you have enough rows then should be straightforward?
No, I see what you're saying. I am trying to say that I want to link my football field chart data directly so I do not have to update it any time I make a change (leverage multiple, exit multiple, exit year, etc.). I understand I can just fool around with my sensitivity table which shows IRR based on different entry multiples to get the data, but that requires guessing and checking. I could just set up a chart with a ton of rows, but that is not exact and kind of a pain.
Use Solver and/or GoalSeek...IIRC GoalSeek doesn't like models with circ very much, but otherwise for this they should be about equal.
Goal Seek freaked out. Had a lot of trouble with the circularity and iterations. It wasn't allowing my sensitivity taBle to recalc to test different inputs - so nothing worked.
I'll try to play with Solver. Thanks.
Coming up with a Valuation Range (Originally Posted: 04/24/2012)
Say you are valuing a $100 M software company for a pitch. EBITDA $20 M. Revenue Growth 9% Year over Year. I realize you use public comps and precedent transactions to value the Company (less focus on DCF since you don’t have management projections), but how exactly do you come up with the valuation range that you recommend to the client?
Do you take the median EBITDA multiple of the set and apply to the target’s metric, or take the multiple of the most comparable transaction or Company in the set, and apply it to the target’s metric? How does the football field come into play, and how do you come up with a valuation range from it? Do bankers always adjust the range upwards?
Sorry if this seems like a rudimentary question – am just trying to better understand how to come up with a recommended valuation range for the client based on public comps and precedent transactions.
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