PRACTICE · LEVEL 2 · ABOUT 15 MIN
Not triedHarbor Maintenance: the paper LBO
A maintenance company has entry EBITDA of 25 and is bought for 8× EBITDA on a cash-free, debt-free basis. New acquisition debt is 120. Sponsor equity also funds 4 of transaction fees. Hold for 5 years.
Exit EBITDA is 32 at 8×, and cumulative debt repayment is 10. Calculate sponsor returns.
Then change only the exit: EBITDA 28 at 7×, repayment unchanged. Finally: what is the most the sponsor could pay for a 20% IRR, holding the exit, debt, fees and timing fixed?
Assumptions
- All values in $ millions.
- The 10 of repayment is supplied after interest, taxes, capex and working capital. Don't subtract those again.
- No excess cash, interim distributions, additional equity, management dilution or exit fees.
- The downside changes the exit only. It is an isolated sensitivity, not a linked operating downside.
Set 1 of 5