LBO Private Equity Interview Question #excelhelp #exceltutorial #exceltips #powerpoint

Key Takeaways

How much debt do you think that this acquired business can pay down? Let's say that we've LBOed a company that has a hund00 million in IBIDA. We acquired the company at a six times IBIDA and leveraged the business to three times at a 10% interest rate. If the company's expected to pay $25 million in taxes and 10 million in capex, how much free cash flow can they generate to pay down the debt? This is a really important question. This is essentially the main engine of why LBOS's work. And we need to make sure that we have appropriate debt financing, meaning that we can pay down the debt over time. So, let's walk from the EBID of 100 million to free cash flow. What we're going to do is first deduct interest. We're told that there's three times leverage, which would be $300 million of debt. We then multiply that by the interest rate of 10% getting us 30 million in interest. The other two main categories are going to be cash taxes and capex, which are 25 and 10 million respectively. So, we'll deduct both of those as well. And that brings us to free cash flow of $35 million. We're going to use that $35 million to pay down the $300 million of debt. And the big advantage here is that next year's interest is going to be even lower.