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[Show more]1. How do you calculate the internal rate of return (IRR) in an LBO model, and what does it mean? The IRR in an LBO is "the effective annual compounded interest rate": For example, if you invest $100 in the beginning and get back $200 after 5 years, what interest rate would turn that $100 into $20...
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Add to cart1. How do you calculate the internal rate of return (IRR) in an LBO model, and what does it mean? The IRR in an LBO is "the effective annual compounded interest rate": For example, if you invest $100 in the beginning and get back $200 after 5 years, what interest rate would turn that $100 into $20...
What is a leveraged buyout, and why does it work? PE firm acquires a company using a combination of Debt and Equity, operates it for several years, and then sells the company at the end of the period to realize a return on its investment. 
During the period of ownership, the PE firm uses the company...
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Add to cartWhat is a leveraged buyout, and why does it work? PE firm acquires a company using a combination of Debt and Equity, operates it for several years, and then sells the company at the end of the period to realize a return on its investment. 
During the period of ownership, the PE firm uses the company...
LBO Acquisition of a company by an investor group Purchase price financed by debt PE firm uses the company's cash flows to pay interest expense on the debt and to pay off the debt principal 
LBO valuation represents the maximum amount a sponsor can pay in order to achieve its required return object...
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Add to cartLBO Acquisition of a company by an investor group Purchase price financed by debt PE firm uses the company's cash flows to pay interest expense on the debt and to pay off the debt principal 
LBO valuation represents the maximum amount a sponsor can pay in order to achieve its required return object...
1. How do you calculate the internal rate of return (IRR) in an LBO model, and what does it mean? The IRR in an LBO is "the effective annual compounded interest rate": For example, if you invest $100 in the beginning and get back $200 after 5 years, what interest rate would turn that $100 into $20...
Preview 2 out of 6 pages
Add to cart1. How do you calculate the internal rate of return (IRR) in an LBO model, and what does it mean? The IRR in an LBO is "the effective annual compounded interest rate": For example, if you invest $100 in the beginning and get back $200 after 5 years, what interest rate would turn that $100 into $20...
Unfunded Revolver Revolver still available (ie hasnt been taken out) 
OID Discount on debt so OID= (100-price)/100*FV 
it means that to buy $100 of Face Value of the Term Loan, lenders would only have to give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid 
BOP B...
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Add to cartUnfunded Revolver Revolver still available (ie hasnt been taken out) 
OID Discount on debt so OID= (100-price)/100*FV 
it means that to buy $100 of Face Value of the Term Loan, lenders would only have to give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid 
BOP B...
2. Wait a minute, how are Call Protection and "Prepayment" different? Don't they refer to the same concept? Call Protection refers to paying off the entire debt balance, whereas "Prepayment" refers to repaying part of the principal early, before the official maturity date. 
3. What are some exa...
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Add to cart2. Wait a minute, how are Call Protection and "Prepayment" different? Don't they refer to the same concept? Call Protection refers to paying off the entire debt balance, whereas "Prepayment" refers to repaying part of the principal early, before the official maturity date. 
3. What are some exa...
What is a leveraged buyout (LBO)? In a leveraged buyout, a private equity firm (often called the financial sponsor) acquires a company with most of the purchase price being funded through the use of various debt instruments such as loans, bonds. The financial sponsor will secure the financing packag...
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Add to cartWhat is a leveraged buyout (LBO)? In a leveraged buyout, a private equity firm (often called the financial sponsor) acquires a company with most of the purchase price being funded through the use of various debt instruments such as loans, bonds. The financial sponsor will secure the financing packag...
Leveraged Buyout (LBO) an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing (debt) 
total debt capacity Debt capacity refers to the total amount of debt a business can incur and repay according to the terms of a debt agreement 
this is ...
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Add to cartLeveraged Buyout (LBO) an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing (debt) 
total debt capacity Debt capacity refers to the total amount of debt a business can incur and repay according to the terms of a debt agreement 
this is ...
What is private equity? Private equity is equity capital that is not quoted on a public exchange. 
Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity 
Capital for priv...
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Add to cartWhat is private equity? Private equity is equity capital that is not quoted on a public exchange. 
Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity 
Capital for priv...
Tell me about the different types of debt you could use in an LBO. Revolver TLA TLB Senior Notes Subordinated Notes Mezzanine 
Each type of debt is arranged in order of rising interest rates - so the Revolver has the lowest interest rates, Term Loan A is slightly higher, B is slightly higher, Senior...
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Add to cartTell me about the different types of debt you could use in an LBO. Revolver TLA TLB Senior Notes Subordinated Notes Mezzanine 
Each type of debt is arranged in order of rising interest rates - so the Revolver has the lowest interest rates, Term Loan A is slightly higher, B is slightly higher, Senior...
What is multiple Expansion? Basically when a company valuation increase with the EBITDA not changing 
What is Internal Rate of Return? A time-weighted metric that tells you what your compounded rate of return would be if you invested your money today and it grew at that rate over your investment hor...
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Add to cartWhat is multiple Expansion? Basically when a company valuation increase with the EBITDA not changing 
What is Internal Rate of Return? A time-weighted metric that tells you what your compounded rate of return would be if you invested your money today and it grew at that rate over your investment hor...
Leveraged Buyout - LBO • An LBO is an acquisition of a target using primarily debt to finance the purchase 
• You buy a company using leverage, pay down debt with FCF and then hope to sell it later at a higher EBITDA multiple 
• Debt can be 60-70% of purchase price 
• LBOs can generate inves...
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Add to cartLeveraged Buyout - LBO • An LBO is an acquisition of a target using primarily debt to finance the purchase 
• You buy a company using leverage, pay down debt with FCF and then hope to sell it later at a higher EBITDA multiple 
• Debt can be 60-70% of purchase price 
• LBOs can generate inves...
What will you be given in a paper LBO? 1) Capital Structure (% debt vs. equity) for leverage 2) Duration of investment for IRR estimation 3) Projected EBITDA for FCF (may be given in the form of revenue, growth rate and margins) 4) Depreciation and amortization expense for tax calculation 5) Cost of...
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Add to cartWhat will you be given in a paper LBO? 1) Capital Structure (% debt vs. equity) for leverage 2) Duration of investment for IRR estimation 3) Projected EBITDA for FCF (may be given in the form of revenue, growth rate and margins) 4) Depreciation and amortization expense for tax calculation 5) Cost of...
What are the differences between DCF and LBO cash flows? LBO cash flows are levered. They have interest expense accounted for while DCF cash flows generally do not. LBO cash flows also generally have a scheduled amortization of debt taken out. 
How do you increase your return in an LBO? More debt, e...
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Add to cartWhat are the differences between DCF and LBO cash flows? LBO cash flows are levered. They have interest expense accounted for while DCF cash flows generally do not. LBO cash flows also generally have a scheduled amortization of debt taken out. 
How do you increase your return in an LBO? More debt, e...
Changes That Increase IRR Lower Purchase Price, Less Equity, Higher Revenue Growth, Higher EBITDA Margins, Lower Interest Rates, Lower CapEx 
Changes That Reduce IRR: Higher Purchase Price, More Equity, Lower Revenue Growth, Lower EBITDA Margins, Higher Interest Rates, Higher CapEx 
What is a levera...
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Add to cartChanges That Increase IRR Lower Purchase Price, Less Equity, Higher Revenue Growth, Higher EBITDA Margins, Lower Interest Rates, Lower CapEx 
Changes That Reduce IRR: Higher Purchase Price, More Equity, Lower Revenue Growth, Lower EBITDA Margins, Higher Interest Rates, Higher CapEx 
What is a levera...
What is an LBO? When firm acquires a company using a combination of debt and minimal equity, operates it for several years and then sells it. With leverage amplifying returns. 
Why would you use leverage when buying a company? 1) To amplify returns. 2) Have capital available for other purchases 
Rem...
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Add to cartWhat is an LBO? When firm acquires a company using a combination of debt and minimal equity, operates it for several years and then sells it. With leverage amplifying returns. 
Why would you use leverage when buying a company? 1) To amplify returns. 2) Have capital available for other purchases 
Rem...
What is a merger model used for? A merger model is used to look at when one company acquires another whether or not the proforma EPS is greater than the buyer's standalone EPS 
To do this you have to make assumptions about the purchase price / premium, the form of consideration, the interest rate o...
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Add to cartWhat is a merger model used for? A merger model is used to look at when one company acquires another whether or not the proforma EPS is greater than the buyer's standalone EPS 
To do this you have to make assumptions about the purchase price / premium, the form of consideration, the interest rate o...
What are the primary functions of LBO analysis? On the financing side, the banker uses LBO analysis to help craft a viable financing structure for the target, which encompasses the amount, type, and terms of debt, as well as the equity contribution. In an M&A advisory context, the banker uses LBO an...
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Add to cartWhat are the primary functions of LBO analysis? On the financing side, the banker uses LBO analysis to help craft a viable financing structure for the target, which encompasses the amount, type, and terms of debt, as well as the equity contribution. In an M&A advisory context, the banker uses LBO an...
Can you walk me through how you might make an investment decision based on the output from an LBO model? 1) Determine investment criteria (IRR and MoM multiple) 2) Build projections and look at LBO model output for Base Case. If numbers work, build projections for Downside Case 3) Back up decision w...
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Add to cartCan you walk me through how you might make an investment decision based on the output from an LBO model? 1) Determine investment criteria (IRR and MoM multiple) 2) Build projections and look at LBO model output for Base Case. If numbers work, build projections for Downside Case 3) Back up decision w...
Why do PE firms use leverage when buying companies? Amplify returns using leverage Less capital upfront => greater upside potential + greater risk 
Walk me through a basic LBO model 1. Make assumptions about purchase price, funding sources, interest rate on debt, and growth 2. S&U to back into Eq...
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Add to cartWhy do PE firms use leverage when buying companies? Amplify returns using leverage Less capital upfront => greater upside potential + greater risk 
Walk me through a basic LBO model 1. Make assumptions about purchase price, funding sources, interest rate on debt, and growth 2. S&U to back into Eq...
1. Can you explain how to adjust the Balance Sheet in an LBO model? The adjustments are similar to those in an M&A deal, but in an LBO, you don't "combine" the Seller's Balance Sheet with the Buyer's since the "Buyer" is an empty shell corporation. 
You still write down the company's Shareho...
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Add to cart1. Can you explain how to adjust the Balance Sheet in an LBO model? The adjustments are similar to those in an M&A deal, but in an LBO, you don't "combine" the Seller's Balance Sheet with the Buyer's since the "Buyer" is an empty shell corporation. 
You still write down the company's Shareho...
1. What's the true purchase price in a leveraged buyout? Just as in a merger model, you always start with the Equity Purchase Price - the cost of acquiring all the company's common shares. 
Then, depending on the treatment of Cash, Debt, Transaction Fees, and Equity Rollovers, the "true price" m...
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Add to cart1. What's the true purchase price in a leveraged buyout? Just as in a merger model, you always start with the Equity Purchase Price - the cost of acquiring all the company's common shares. 
Then, depending on the treatment of Cash, Debt, Transaction Fees, and Equity Rollovers, the "true price" m...
1. What are the different exit strategies available to a private equity firm in a leveraged buyout, and what are the advantages and disadvantages of each one? The main exit strategies are an M&A deal, an initial public offering (IPO), and a dividend recapitalization. 
In an M&A Deal, the PE firm sel...
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Add to cart1. What are the different exit strategies available to a private equity firm in a leveraged buyout, and what are the advantages and disadvantages of each one? The main exit strategies are an M&A deal, an initial public offering (IPO), and a dividend recapitalization. 
In an M&A Deal, the PE firm sel...
Walk me through a basic LBO model 
What are its most important levers? Step 1: Determine purchase price and D/E ratio Step 2: Create a S&U table and PPA schedule Step 3: Adjust the company's balance sheet Step 4: Project debt repayments based on FCF Step 5: Make exit assumptions, find IRR/MoM 
Purc...
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Add to cartWalk me through a basic LBO model 
What are its most important levers? Step 1: Determine purchase price and D/E ratio Step 2: Create a S&U table and PPA schedule Step 3: Adjust the company's balance sheet Step 4: Project debt repayments based on FCF Step 5: Make exit assumptions, find IRR/MoM 
Purc...
1. How could you determine how much debt can be raised in an LBO and how many tranches there would be? Usually you would look at recent, similar LBOs and assess the debt terms and tranches that were used in each transaction. You could also look at companies in a similar size range and industry, see ...
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Add to cart1. How could you determine how much debt can be raised in an LBO and how many tranches there would be? Usually you would look at recent, similar LBOs and assess the debt terms and tranches that were used in each transaction. You could also look at companies in a similar size range and industry, see ...
What are characteristics of a good candidate for an LBO? Steady Cash flows Limited Business Risk Low CAPEX / Working Capital Strong Management Opportunity for Cost Reduction High asset base value Low R&D Steady industry 
What are some way to increase the IRR of an LBO? Reduce the purchase Price Incr...
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Add to cartWhat are characteristics of a good candidate for an LBO? Steady Cash flows Limited Business Risk Low CAPEX / Working Capital Strong Management Opportunity for Cost Reduction High asset base value Low R&D Steady industry 
What are some way to increase the IRR of an LBO? Reduce the purchase Price Incr...
Net working capital = receivables + inventory - payables 
Receivables days = receivables/sales x 365 
Inventory days = inventory/cogs x 365 
Payables days = payables/cogs x 365 
Capex is estimated as a % of sales, unless there is a more reasonable method 
Depreciation is estimated from a capex/depre...
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Add to cartNet working capital = receivables + inventory - payables 
Receivables days = receivables/sales x 365 
Inventory days = inventory/cogs x 365 
Payables days = payables/cogs x 365 
Capex is estimated as a % of sales, unless there is a more reasonable method 
Depreciation is estimated from a capex/depre...
Sections Transaction assumptions, income statement, working capital schedule, balance sheet, statement of cash flows, debt schedule, interest expense schedule, credit metrics, returns calculations 
Transaction assumptions: Sections Sources & uses, transaction assumptions, financing assumptions, purc...
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Add to cartSections Transaction assumptions, income statement, working capital schedule, balance sheet, statement of cash flows, debt schedule, interest expense schedule, credit metrics, returns calculations 
Transaction assumptions: Sections Sources & uses, transaction assumptions, financing assumptions, purc...
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