Lecture 8 | Corporate and restructuring part 2

Question 1

What is a leveraged buyout?

Answer 1

Leveraged buyout refers to the acquisition of a firm using debt as a large portion, traditionally 60-70% of the purchase is financed by debt.

Question 2

Who participates in LBOs? What are their requirements to be involved with the LBO?

Answer 2

Participants such as
- private equity- buyout firms, management (management bbuyouts) , investment banks, banks and other lenders, bond investors, target firms

Thy need to have strong cash flow generation, strong market position/ barriers to entry, growth opportunities, efficiency enhancement opportunity etc

Question 3

What are the steps to work on a LBO? (4 steps)

Answer 3

Step 1: start initial work on the 3 financial statements (IS,CF,BS) historical and projected
IS, CF, BS, Assumptions1

Step2: Incorporate the LBO related financing structure
- assumptions2, BS

Step 3: Finish the three financial statements
- debt, IS, CF, BS

step 4: conduct investment return analysis
- summary, return

Question 4

What does the LBO model start with?

Answer 4

The LBO model starts with the income statement in the IS sheet.
only work up to EBIT, leave out int-expense until debt comes in.

Question 5

What is ammortization?

Answer 5

Amortization is depreciation for intangible assets

Question 6

Where does projected sales, CoGS,SG&A depreciation and amortization go into?

Answer 6

It goes into assumptions 1, diff