LBOstands for Leveraged Buyoutand refers to the purchase of a company while using mainly debt to finance the transaction. Leveraged Buyouts are usually done by private equity firms and rose to prominence in the 1980s. The company performing theLBOor takeover only has to provide a portion of the financing yet is able to make a large purchase through the use of debt, hence the name 'Leveraged'. During the 1980s - 1990s whenLBOswere hot, debt could make up as much as 90% of the purchase of a business. However, now investors and private equity firms are a bit more risk adverse and therefore may use closer to 50% debt and 50% equity to purchase a business. The expectation with leveraged buyouts is that the return generated on the acquisition will more than outweigh the interest paid on the debt, hence making it a very good way to experience high returns whilst only risking a small amount of capital.
利用收购定义
You can learn more aboutLBOsin the video below.
What Companies Make GoodLBOTargets?
Considering that the buyer will put a large amount of debt on the company, it is critical that the company be stable and able to pay off its future debts otherwise it will likely default and go into bankruptcy. With that in mind, below are some types of companies that make good targets:
- 稳定，强大的现金流量业务
- Company with low debt levels
- Non-cyclical businesses
- Companies with large economic moats
- Companies with good existing management teams
- Companies with a large asset base that can be used for collateral
- 好产业的陷入困境的公司
Some private equity firms look to "turn around" troubled assets or may just look to buy an asset with the hopes of selling it for a better price in the future.
FreeLBOModeling Test (Email Form Below Video)
看看您是否准备好实现真正的交易。包括视频解决方案 +建模文件，因此您可以获得现实的练习。只需在下面的字段中输入您的电子邮件。
怎么办PE基金分辨ase the Value of the Target?
When aPEfund purchases a business, it either plans to hold the company and let it continue operating the same way or it may look to undergo operational improvements. These operational improvements may involve changing the management team of the business, selling off assets to unlock value, purchasing additional assets to make the core business more efficient, among a variety of different options. This is all done in the hopes of either increasing the profitability of the business or expanding the multiple that the business is valued at.
What Happens to the Debt in the LBO?
ThePEfirm will then either sell off parts or all of the target company or use its future cash flows to pay off the debt and then exit at a profit. Since the debt that is used to purchase the business is put on the books of the target company and not thePEfirm (sponsor), when the company is sold any amount of debt that is paid down becomes equity. Once the target company is on stable footing, the sponsor may use the internal cash flows of the business to pay off the debt that was used in the buyout transaction. By doing this, they increase the return that they achieve when they sell the business either through anIPO或业务出售给金融或开发ic buyer. You can see a visual example below.
After year 4, if we assume that the business has not been operationally improved and that the multiple assigned to the firm'sEBITDAhas not expanded, the business could be sold today for $100 million and the financial sponsor would receive $90 million dollars on their initial $40 million investment. In a span of 4 years, the company made $50 million dollars not including performance fees that they are being paid by their clients.
**要了解有关此概念的更多信息，并成为LBO建模的主人，您应该检查我们的LBO建模课程。Learn more here.**
Module 1: Introduction
Module 2: LBO The Big Picture
Module 3: Valuation and Transaction Assumptions
Module 4: Sources and Uses: The Theory
Module 5: Sources and Uses: Application to Nike Case
模块6：P＆L预测和LBO调整
Module 7: Debt Schedule
Module 8: Balance Sheet and Adjustments
Module 9: Taxes
Module 10: Exit, Returns, & Sensitivity Analysis
Bonus Module A) Purchase Price Accounting
奖金模块b）股息回顾
Bonus Module C) Add-on Acquisition Build
Related Terms
- Acquisition
- Asset
- Bridge Loan
- Capital
- Collateral
- 盟约
- Discounted Cash Flow (DCF)
- Debt
- Debt
- Exit Multiple
- 自由现金流（FCF）
- Investment Banking Division (IBD)
- Internal Rate of Return (IRR)
- Junk Bond
- Leverage
- 管理收购（MBO）
- Private Equity (PE)
- Takeover
- Valuation
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