LBO
In an LBO, what makes a company a good candidate target?
What is a company with stable cash flow, low capex, a defensible market position, and the ability to support debt?
What is the core difference between an asset purchase and a stock purchase?
What is that in an asset deal, selected assets and liabilities are bought directly, while in a stock deal, the buyer acquires the legal entity itself?
Why do bankers use a DCF?
What is to estimate intrinsic value by projecting free cash flows and discounting them back to present value?
What does it mean if a deal is accretive?
What is that the buyer’s EPS increases after the acquisition?
What are the three primary financial statements?
What are the income statement, balance sheet, and cash flow statement?
Why does using more debt usually increase sponsor returns in an LBO, assuming the deal performs as expected?
What is debt reducing the equity the sponsor must contribute, which can boost equity returns if the business value grows and debt is repaid?
What is goodwill in an acquisition?
What is the excess of purchase price over the fair value of net identifiable assets acquired?
What are the two most common ways to calculate terminal value in a DCF?
What are the perpetuity growth method and the exit multiple method?
Why do cost synergies often help make a deal accretive?
What is that they increase combined earnings and can offset financing and premium-related dilution?
What is the difference between a DTA and a DTL?
What is that a DTA reflects a future tax benefit, while a DTL reflects taxes deferred to future periods because of temporary timing differences?
Clue: A sponsor buys a company for 11.5x EBITDA. EBITDA is $72 million, and debt is 65% of the purchase price. How much equity does the sponsor invest?
What is $289.8 million?
A buyer pays $960 million for a target with book equity of $615 million. Ignoring write-ups and taxes, what is goodwill?
What is $345 million?
A company generates $135 million of next-year FCF, and the WACC is 9%. Ignoring growth, what is the value of that perpetuity?
What is $1,500 million?
A buyer has $300 million of net income and 120 million shares. A seller contributes $90 million of net income, and the buyer issues 30 million new shares. What is pro forma EPS?
What is $2.60 per share?
Depreciation increases by $24, and the tax rate is 25%. What is the impact on net income?
What is a decrease of $18?
A sponsor invests $360 million of equity and exits for $810 million after 5 years. What is the equity multiple, and what is the approximate IRR?
What is a 2.25x equity multiple and approximately an 18% IRR?
A buyer pays $1,050 million for a target with book equity of $700 million. Assets are written up by $120 million, and the tax rate is 25% on the write-up. What is goodwill?
What is $260 million?
A company has next-year FCF of $126 million, 3% perpetual growth, and a 9% WACC. It also has debt of $420 million and cash of $90 million. What are enterprise value and equity value?
What is enterprise value of $2,100 million and equity value of $1,770 million?
A buyer has $300 million of net income and 120 million shares. A seller contributes $90 million of net income, the buyer issues 30 million new shares, and there are $15 million of after-tax synergies. What is pro forma EPS, and is the deal accretive?
What is $2.70 per share, and yes, the deal is accretive?
A company records a $36 goodwill impairment, and the charge is not tax-deductible. What happens to net income, cash flow from operations, and shareholders’ equity?
What is net income down $36, cash flow from operations unchanged, and shareholders’ equity down $36?
A sponsor buys a business for 9.0x EBITDA on $120 million EBITDA using 60% debt and 40% equity. Five years later, EBITDA is $150 million, the exit multiple is unchanged, and debt has been paid down by half. What is the sponsor’s exit equity value and approximate IRR?
What is $810 million of exit equity value and approximately a 14% IRR?
A buyer pays $1,300 million for a target with book equity of $800 million. Assets are written up by $180 million, liabilities are written down by $40 million, and the tax rate is 25% on the net write-up. What is goodwill?
What is $215 million?
A company has next-year FCF of $160 million, 4% perpetual growth, and a 12% WACC. It also has debt of $500 million and cash of $100 million. What are enterprise value and equity value?
What is enterprise value of $2,000 million and equity value of $1,600 million?
A buyer has $300 million of net income and 100 million shares. A seller contributes $40 million of net income, the buyer issues 30 million new shares, there are no synergies, and the buyer also takes on $100 million of new debt at 10% interest to pay transaction fees. Assume a 25% tax rate. What is pro forma EPS, and is the deal accretive or dilutive?
What is approximately $2.56 per share, and the deal is dilutive?
A company records a $40 inventory write-down. The tax rate is 25%, and the write-down is tax-deductible. What happens to net income, cash flow from operations, and shareholders’ equity in the current period?
What is net income down $30, cash flow from operations up $10, and shareholders’ equity down $30?