:quality(80))
Once the investor has decided, after reviewing and examining the documents, to proceed further in the transaction process, the seller can expect a preliminary offer shortly. Various methods (simplified for now) can be used to provide an initial indication.
In addition to valuation using transaction multiples, the so-called leveraged buyout model has become widely accepted in recent decades, particularly among financial investors, due to their strong focus on returns. But what exactly does this entail?
The term “leveraged buyout” refers to a specific form of corporate acquisition that is primarily financed through debt. The sources of this debt are typically secured by the company’s assets and are subject to interest and principal payments. Repayment is then made using the generated cash flow.
The leveraged buyout thus owes its name to the fact that, in this method of corporate acquisition, the proportion of debt financing acts as leverage to increase the return on invested equity. With a relatively low equity contribution, the investor can thereby achieve a high return on equity, provided that the return on total capital exceeds the interest on the debt. An LBO model is often used when the buyer intends to resell the company after a certain period of time.
These Excel valuation models often require a high level of detail, are prone to errors, and can typically only be used by specialists.
The following explains what such an LBO model might look like in simplified form, even when the data set is not yet complete. With our Best Practice LBO Tool, we aim to provide you with a simple tool that allows you to perform a rough assessment of a deal’s potential return in just a few minutes. Below, you’ll find an Excel template that can be customized as needed using the respective input fields, along with instructions that guide you through the individual steps of the resulting valuation.
Our Best Practice Guide shows you the best approach step by step:
Basic Assumption: Sale Price
Source & Use of Funds
Financial Forecasts
Balance Sheet Adjustments
Basic Assumptions & Exit
IRR Calculation
Read the DealCircle Best Practice LBO Model Guide here and get our Excel template as well.
And if you’re interested in seeing exciting M&A deals on an ongoing basis, register for free: HERE
