What do you do with transaction fees in an LBO model?

AntoineLesa's picture
Rank: Chimp | 5

Hi all,

When solving a simple paper LBO model, how do you account for transaction fees?
Let's say the EV is 1000 and you acquire the firm using 70% debt. Transaction fees are 50 and existing cash is 50. After 5 years cumulative FCFE is 200 and you can sell the firm for 1200.
Is it correct that the cash multiple = (1200 + 200 - 700)/300 = 2.33? How do you account for the existing cash and the transaction fess in this kind of calculation?

Many thanks in advance,


Comments (2)

Most Helpful
Jun 24, 2018

Your cash on cash multiple is correct.

You deal with the transaction fees and cash in the sources / uses.

Uses: Equity + Debt (1050), Min Cash (0)
Sources: BS cash (50), Debt (700), Equity Check (300)

If you have a Min cash requirement or there isn't enough BS cash to fund the fees, the sponsor has to write a bigger check. That 300 is the "plug" in the equation

    • 2
Jun 26, 2018