Podcast
Questions and Answers
What is involved in step 1 of an LBO?
What is involved in step 1 of an LBO?
What does step 2 involve in an LBO process?
What does step 2 involve in an LBO process?
Creating a Sources & Uses section
In step 3, what must you adjust on the Balance Sheet?
In step 3, what must you adjust on the Balance Sheet?
New Debt and Equity figures, along with Goodwill & Other Intangibles
What is the focus of step 4 in an LBO?
What is the focus of step 4 in an LBO?
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What assumptions are made in step 5 of an LBO?
What assumptions are made in step 5 of an LBO?
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Study Notes
LBO Process Steps
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Step 1: Assumptions
- Determine Purchase Price and Debt/Equity ratio.
- Establish Interest Rate on Debt.
- Estimate operational aspects such as Revenue Growth and Margins based on available data.
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Step 2: Sources & Uses Section
- Outline financing structure detailing sources of capital and their use.
- Identify required Investor Equity to fund the transaction.
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Step 3: Balance Sheet Adjustments
- Update Balance Sheet to reflect new Debt and Equity figures.
- Incorporate Goodwill and Other Intangibles to balance the asset side.
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Step 4: Financial Projections
- Create projections for Income Statement, Balance Sheet, and Cash Flow Statement.
- Assess annual debt repayment capability based on Cash Flow and Interest Payments.
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Step 5: Exit Assumptions
- Make projections for exit typically based on an EBITDA Exit Multiple.
- Calculate returns focusing on equity returned to the firm after several years.
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Description
Explore the essential steps involved in a Leveraged Buyout (LBO) through these flashcards. Each card provides a concise definition and context for key concepts like Purchase Price, Debt/Equity ratio, and more. Perfect for finance students and professionals looking to solidify their understanding of LBO transactions.
