Leveraged buyouts A Practical Guide to Investment Banking and Private Equity

[...]... less cash and cash equivalents Similarly, if we add to market capitalization (market value) any potential debts and obligations less cash and cash equivalents, we approach the enterprise value of a company on a market value basis 9 What Is Value?� Here is a quick recap: Valuation Category Book Value Market Value Equity Value Enterprise Value Shareholders’ Equity Shareholders’ Equity plus potential debts... historical transactions In other words, to find an appropriate value of a private company, you can look for companies that are similar in product and size to that company: comparable companies The multiples ranges of these comparable companies can determine the value of the private company Also, looking at the price paid for historical transactions similar in product and size to the private company as a multiple... of a business as determined by the market (Share Price × Shares Outstanding) When we take the market capitalization and add the total liabilities of $5 million, we get a value that represents the value of the company’s total assets as determined by the market However, in valuation we typically take market capitalization or book value and add back not the total liabilities, but just debts and obligations... methods of valuation: i Comparable company analysis ii Precedent transactions analysis i ii Discounted cash flow analysis 3 Ability to understand a simple IRR analysis (leveraged buyout analysis) a Purchase price b Sources and uses c Calculating investor rate of return (IRR) 1 Chapter 1 Leveraged Buyout Theory A leveraged buyout is an acquisition of a company using a significant amount of debt to meet... Part One Leveraged Buyout Overview A leveraged buyout (LBO) is a fundamental, yet complex acquisition commonly used in the investment banking and private equity industries We will take a look at the basic concepts, benefits, and drawbacks of a leveraged buyout We will understand how to effectively analyze an LBO We will further analyze the fundamental impact of such a transaction and calculate the expected... share as exemplified in the preceding press release However, private companies are popular leveraged buyout candidates as well If we are evaluating a private company, we do not have a current market trading value from which to value the business So, we need to use multiples to establish an estimated purchase price Multiples of a private company can be based on public company comparables or historical... than the multiples of the company we are valuing, it could mean that our company is overvalued The comparable company analysis has one major advantage over the other valuation methods: ■⌀ It is the most current of all three analyses It gives a market perspective The comparable company analysis is based on the most recent stock prices and financials of the company However, the comparable company analysis... purchase price includes a premium This could be advantageous if we were looking to acquire a company It would help us determine how much of a premium we would need to consider to convince the owner or shareholders to hand over the company to us And there are several major drawbacks to the analysis: Historical analysis Precedent transactions by definition are historical transactions The analysis may be... while all three major valuation methodologies have significant drawbacks, they do have strengths It is important to play the strengths of each off of the others to come up with an approximate value of the entire business If you are interested in seeing how that is technically done, I recommend reading my book Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity( John... a complete valuation analysis on Walmart Chapter 3 Leveraged Buyout Analysis T here are three major steps to conducting a leveraged buyout (LBO) analysis: Step 1:╇ Obtaining a purchase price Step 2:╇ Estimating sources and uses of funds Step 3:╇ Calculating investor rate of return (IRR) Purchase Price In order to conduct a leveraged buyout analysis, we first need to obtain a potential purchase . three parts: 1. Leveraged Buyout Overview 2. Leveraged Buyout Full-Scale Model 3. Advanced Leveraged Buyout Techniques In Part One, we explain the concepts and mechanics of a leveraged buyout the leveraged buyout, a derivative of the takeover, culminating with the most noted leveraged buyout of its time, the $25 billion buyout of RJR Nabisco by Kohlberg Kravis Roberts in 1989. A leveraged. mechanics, aggressiveness, and high-return potential of leveraged buyouts. This book seeks to give any investor the fundamental tools to help ana- lyze a leveraged buyout and determine if the potential