Leveraged Buyouts
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Ask your LBO related questions here, both concepts and modeling-specific.
distinguish between equity returns to sponsor, all-in sponsor returns
assuming he also holds the mezz/warrants piece, and a separate mezz
returns profile for an outside mezz/warrant holder. My questions revolve
around proper IRR calcs that capture all cash flows:
1) Shouldn't the first sponsor returns module include a line for any
("special") divs paid out, as is done below for the
sponsor-as-mezz+eq-hldr? Moreover, shouldn't that dividend line be
adjusted downward by multiplying by the % of equity owned by sponsor (assuming he doesn't own 100%)?
2) Shouldn't the sponsor equity+mezz module also adjust the dividends line by multiplying by % of equity owned, even though in this case it's 100%? (The model pulls 100% of the dividends paid out to all the equity holders from the CF stmt.)
3) Now let's assume the outside mezz holder also buys an equity slug, in
addtion to warrants attached to the mezz debt investment. Should I adjust the last IRR module by making it like the 2nd module, i.e., make the total investment = mezz notes+equity invst, then add a line for the warrants ownership? Let's say the direct equity buy is 23% of the equity and the warrants add 5% more when exercised. As above, wouldn't I also need to add a dividend line each year and adjust it for the 23% equity owned outright by the mezz holder? Ergo, the IRR calc for this piece would have to add in each cascading terminal year : Total implied equity value*(23%+5%) + sum(mezz cash int+mezz end bal).
Is this correct thinking? Read More