LBO Analysis

3 Major steps of a LBO analysis

1. Obtaining a purchase price
2. Estimating sources and uses of funds
1. Uses of funds (how much is money needed)
1. Purchase price
2. Net debt
1. Including lease obligations
2. Change in control covenant might force repayment of the debt
3. If Equity Value (calculated based on net income, i.e. after interest) is paid then the buyer takes on the debt of the bought company, if Enterprise Value
(calculated based on EBITDA, i.e. before interest) is paid then the buyer does not take on the debt
4. Net debt is Total debt less cash and cash equivalents. Cash will be zero after acquisition as it is used to pay down outstanding debt
3. Transaction fees
2. Sources of funds
1. Loans, Bonds, Seller Notes (Gesellschafterdarlehen), Mezzanine (e.g. convertible debt), Equity, Cash
3. Calculating investor rate of return
1. Initial Assumption
1. Holding period
2. Exit value method
2. Unlevered Free Cash Flow Projection
1. Unlevered free cash flow is cash that is available to all capital providers, including equity holders and lenders. It is a measure of cash
flow before equity holders and lenders have been paid.
2. Net income + Depreciation&Amortization + Deferred Taxes + Net Working Capital – CAPEX + after-tax interest expanses
3. Calculation of Exit Enterprise Value = EBITDA Exit Year * EBITDA Multiple
4. Calculation of Exit Debt = Beginning Debt * Interest Rate * Years * (1 – Tax Rate)
5. Calculation of IRR = (Equity Exit Value/Equity Invested)^(1/years)-1
 Major Steps

1 2 3
Obtaining a pruchase Estimating sources Calculating investor
price and uses (how much rate of return
money needeof
funds