Overview

Leveraged Buy Out

In this guide we consider another Corporate Valuation. In addition to a financial sponsor, the transaction is also funded with considerable debt. Because of the amount of debt involved, this type of transaction is sometimes also referred to as a leveraged buyout.

The company concerned is called ABC Company, Inc - a software company that develops applications for smartphone devices. The company currently sells two products for various smartphones. The first is a software application called ‘Cloud’ that tracks weather data. The second, ‘Time’, acts as a calendar that keeps track of a user’s schedule.

In the pages that follow, we will build an integrated three-statement LBO model together with all necessary schedules. This kind of financial model involves making a number assumptions, and we will touch on these as we go in the relevant section.

We will start by considering the particulars of the Transaction. Next, given how debt is such a large component of the deal, we will look at this. After this, we will build a Depreciation schedule, followed by constucting the three main statements of the LBO. We will then finish things off by making any necessary investment return calculations.

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