LBO Analysis
What are the primary functions of LBO analysis? - ANSOn 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 analysis to
determine an implied valuation range for a given target in a potential LBO sale
based on achieving acceptable returns.
How is LBO analysis used to analyze and craft financing structure? -
ANSThe output enables the banker to analyze a given financing structure on the
basis of cash flow generation, debt repayment, credit statistics, and investment
returns over a projection period.
Who chooses the preferred financing structure for a given LBO? - ANSThe
sponsor chooses—often a compilation of the best terms from proposals solicited
from several banks.
How is LBO analysis used to determine valuation? - ANSThe valuation
output is premised on assumptions for financial projections, purchase price, and
financing structure, as well as exit multiple and year (assuming an exit via a sale).
Therefore, sensitivity analysis is performed on these key value drivers to produce a
range of IRRs used to frame valuation for the target. Sponsors typically target 20%
+ IRRs in assessing acquisition opportunities and determine valuation accordingly.
What IRR threshold has historically served as the standard for sponsors in
considering an LBO? - ANS20%+
Which of the following are key components of an LBO analysis transaction
summary page?
A) Sources and uses of funds
B) Capitalization and credit statistics summary
C) Debt schedule
D) Assumptions summary page - ANSA) Sources and uses of funds and B)
Capitalization and credit statistics summary
Under what circumstances might a strategic buyer use LBO analysis? -
ANSTo determine the price a financial sponsor bidder can afford to pay when
competing for an asset in an auction process.
What are the key sensitivities performed in LBO analysis? - ANSPurchase
price (entry multiple), leverage, exit year, and exit multiple.
What are the primary functions of LBO analysis? - ANSOn 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 analysis to
determine an implied valuation range for a given target in a potential LBO sale
based on achieving acceptable returns.
How is LBO analysis used to analyze and craft financing structure? -
ANSThe output enables the banker to analyze a given financing structure on the
basis of cash flow generation, debt repayment, credit statistics, and investment
returns over a projection period.
Who chooses the preferred financing structure for a given LBO? - ANSThe
sponsor chooses—often a compilation of the best terms from proposals solicited
from several banks.
How is LBO analysis used to determine valuation? - ANSThe valuation
output is premised on assumptions for financial projections, purchase price, and
financing structure, as well as exit multiple and year (assuming an exit via a sale).
Therefore, sensitivity analysis is performed on these key value drivers to produce a
range of IRRs used to frame valuation for the target. Sponsors typically target 20%
+ IRRs in assessing acquisition opportunities and determine valuation accordingly.
What IRR threshold has historically served as the standard for sponsors in
considering an LBO? - ANS20%+
Which of the following are key components of an LBO analysis transaction
summary page?
A) Sources and uses of funds
B) Capitalization and credit statistics summary
C) Debt schedule
D) Assumptions summary page - ANSA) Sources and uses of funds and B)
Capitalization and credit statistics summary
Under what circumstances might a strategic buyer use LBO analysis? -
ANSTo determine the price a financial sponsor bidder can afford to pay when
competing for an asset in an auction process.
What are the key sensitivities performed in LBO analysis? - ANSPurchase
price (entry multiple), leverage, exit year, and exit multiple.
