May
20th
Thu
20th
The Math Of An LBO
When I read about 5 or 6 large buy-out funds bidding on a mature company in a mature market at 10x EBITDA valuations, I wonder where real value creation may come from.
In addition, the financial sponsor will have to add management layers that were probably unnecessary before and will have no access to synergies that an industrial player enjoys.
Truth is that the math of a traditional leveraged buy-out with no revenue growth, no EBITDA growth and no multiple expansion with a 50%/50% equity/debt capital structure is extremely hard, even with 6x EV/EBITDA valuations. Feel free to play around with my stripped down version of an LBO model spreadsheet on Google Docs.
