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Fitting a Private Equity Transaction on 1 Page
- The Purchase Price is typically based on a multiple of the trailing-twelve-month (“TTM”) Adjusted EBITDA, which is calculated in your financial model.
- The Purchase Price is the north star of your LBO model -- the sources of funds you need will all derive from it, so make sure it matches the LOI by building a double-check.
- Notice how the Total Uses are actually $26,356,417 and not $25,000,000 (the Purchase Price)? That’s because we have to pay fees in addition to the Purchase Price to get the deal done.
- From there things get much easier -- we just need high-level, summary stuff.
- Covenants and Returns are the most important part of your LBO model, and they will make or break the entire deal.
- The lender has asked for 1.1x coverage, meaning 'you can cover the charges plus a little extra,' and our model shows we’re going from 1.3x all the way up to 3.1x.
- Here the lender is saying, 'we don’t ever want debt to exceed 4.5x turns of EBITDA, because otherwise we probably wouldn’t be able to recoup our loan in a sale.'
- In the model, you can see that by year 5, the investors are looking at 3.3x and 30.3% IRR.
- In other words, this investment should generate about 3.0x the opportunity that is available in the public markets.
- If (1) the lenders are set and (2) we’ve got an attractive opportunity for our investors, then our deal is 'looking good' and we’re ready to distribute this output to a larger audience and move forward with the deal.
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