A private equity firm is guaranteed to receive 80% of the residual value of a leveraged...
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A private equity firm is guaranteed to receive 80% of the residual value of a leveraged buyout investment, with the remaining 20% owing to management. The initial investment is $500 million, and the deal is financed with 70% debt and 30% equity. The projected EBITDA multiple is 3.0. The equity component consists of: • $120 million preference shares. • $25 million private equity firm equity. • $5 million management equity. At exit in 5 years, EBITDA is expected to be $400 million, the value of debt is $150 million and the value of preference shares is $300 million. Calculate (1) The payoff multiple (cash-on-cash return) for the private equity firm and for management, respectively (ii) The IRR (compound annual rate of return) of the PE firm A private equity firm is guaranteed to receive 80% of the residual value of a leveraged buyout investment, with the remaining 20% owing to management. The initial investment is $500 million, and the deal is financed with 70% debt and 30% equity. The projected EBITDA multiple is 3.0. The equity component consists of: • $120 million preference shares. • $25 million private equity firm equity. • $5 million management equity. At exit in 5 years, EBITDA is expected to be $400 million, the value of debt is $150 million and the value of preference shares is $300 million. Calculate (1) The payoff multiple (cash-on-cash return) for the private equity firm and for management, respectively (ii) The IRR (compound annual rate of return) of the PE firm
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Related Book For
Business Statistics A Decision Making Approach
ISBN: 9780133021844
9th Edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry
Posted Date:
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