![Picture](/uploads/2/4/1/1/24117391/7540976.jpg)
To lever return on investment, financial sponsors currently prefer purchasing target companies by leverage buyout (LBO). Comparing with my M&A model, the essential difference for LBO model is that acquirers BORROW funds to merge their target. If you were an acquirer or lender, how would you measure your internal rate of return (IRR)? What factors and in which extent would they affect your IRR? How would you judge if the transaction is a good deal?
In the following LBO model, I assume the target company as Company B. The financial sponsor (acquirer) borrowed funds from revolving credit, term loan, senior lien debt, and unsecured note with warrant. In this case, equity investment only occupies 20% of the total capitalization. Multiple assumptions are involved in the model, which play important roles in the real world as they may significantly affect the result.
In the following LBO model, I assume the target company as Company B. The financial sponsor (acquirer) borrowed funds from revolving credit, term loan, senior lien debt, and unsecured note with warrant. In this case, equity investment only occupies 20% of the total capitalization. Multiple assumptions are involved in the model, which play important roles in the real world as they may significantly affect the result.
Your browser does not support viewing this document. Click here to download the document.