An LBO pitch is very similar to a stock pitch, in which it entails talking about your thought process and what you believe makes a good company. You can speak about how it meets the fund’s investment parameters, as well as its stable and recurring cash flows, being a market leader in a defensible ...

The portfolio company may not have enough cash to execute market expansions, do add-on acquisitions, or meet working capital needs. It’s also possible the portfolio company is still growing, and may take some time before generating higher cash flows. As a result, the portfolio company may prefer P...

First, we can account for the equity purchase. We should subtract any existing shareholder’s equity from the target’s balance sheet, since we’re buying it. Then we should add the equity invested from the sponsor and management rollover which can be found in the sources and uses table. Then we ...

The purpose of the sources and uses table is to calculate how much equity the sponsor needs to put in for the purpose of calculating returns later on. We start by calculating total uses, which represents how much money will be spent in acquiring the company as well as paying for transaction and fina...

An LBO model is circular because of the interest expense. The interest expense on the debt pay reduces cash flow. This reduction in cash flow decreases the amount of debt you can repay back. By repaying back less debt, you will have a higher debt balance, which then increases your interest expense. ...

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It is more common for PE firms to increase returns by growing EBITDA, using more debt, or paying back debt. Typically, the exit multiple is assumed to be the same or lower than the entry multiple in order to be conservative. In order to justify increasing the relative valuation of a company, the PE ...

The 5 biggest drivers of IRR are:...

The main types of debt include senior debt and junior debt. Senior debt is usually provided by the banks and has priority on cash flows and assets over the junior debt. This makes it less risky than junior debt, and therefore it pays a lower interest rate. The interest is a floating rate, which is [...

The amount of debt you can raise for an LBO is driven by the stability of the company’s cash flows, the asset base of the target company, the sectors and end markets the company is exposed to, market conditions, and the terms of the debt in the credit agreement (including covenants). The stability...