I'd be happy to help you build an LBO model for your potential acquisition. To create a comprehensive model, I'll need some key information and assumptions. Let me guide you through the process:

1. Target Company Information:

   • What is the target company's current revenue and EBITDA?
   • What's the historical growth rate?
   • What industry is the company in?

2. Transaction Structure:

   • What purchase multiple are you considering (e.g., 8-10x EBITDA)?
   • What's your expected debt-to-equity ratio for the transaction?
   • Are there any seller financing or earnout considerations?

3. Debt Structure:

   • What types of debt are you considering (senior debt, subordinated debt, mezzanine financing)?
   • What are the expected interest rates and terms?
   • Any specific amortization schedules or covenant requirements?

4. Exit Assumptions:

   • What's your expected holding period?
   • What exit multiple are you targeting?

5. Operational Improvements:

   • What revenue growth do you expect during the holding period?
   • What margin improvements do you anticipate achieving?
   • Any significant capital expenditure or working capital changes?

Would you like me to proceed with some standard assumptions for a mid-market company, or do you have specific inputs for any of these parameters?

Great! I'll build an LBO model for a mid-market SaaS company with $50M in revenue and$15M in EBITDA, using a 5-year holding period with standard industry assumptions.

SaaS Company LBO Model Analysis

Transaction Assumptions:

• Purchase Multiple: 12.0x EBITDA (standard for growing SaaS)
• Purchase Price: $180M (12.0x$15M EBITDA)
• Transaction Date: January 1, 2024
• Exit Date: December 31, 2028 (5-year hold)
• Exit Multiple: 11.0x EBITDA (conservative vs. entry)

Financing Structure:

• Total Purchase Price: $180M
• Debt Financing: $108M (60% of purchase price)
  • Senior Debt: $90M (5.0x EBITDA, 6.5% interest)
  • Subordinated Debt: $18M (1.2x EBITDA, 9.5% interest)
• Equity Contribution: $72M (40% of purchase price)

Operational Projections (2024-2028):

Debt Schedule:

Cash Flow and Returns:

Exit Valuation (Year-end 2028):

• Exit EBITDA: $32.8M
• Exit Multiple: 11.0x
• Enterprise Value: $360.8M
• Net Debt: $0M (fully paid down)
• Equity Value: $360.8M

Returns Analysis:

• Initial Equity Investment: $72.0M
• Exit Equity Value: $360.8M
• Gross Multiple on Invested Capital (MOIC): 5.0x
• Gross IRR: 38.0%
• Cash-on-Cash Return: 5.0x

Sensitivity Analysis - IRR by Exit Multiple and EBITDA Margin:

Would you like me to adjust any of these assumptions or provide more detail on any specific aspect of the model?

I'd be happy to prepare a sensitivity analysis to help you understand how different value drivers affect your LBO returns. I'll analyze the impact of operational improvements and debt scenarios on your IRR.

LBO Returns Sensitivity Analysis

Base Case Assumptions Recap:

• Target: Mid-market SaaS company
• Purchase Price: $180M (12.0x$15M EBITDA)
• Debt Financing: $108M (60% of purchase price)
• Equity Contribution: $72M (40% of purchase price)
• 5-year Hold Period: 2024-2028
• Base Case IRR: 38.0%

1. Value Creation Bridge Analysis

Here's a breakdown of how different value creation levers contribute to the overall returns:

This shows that EBITDA growth and debt paydown are the largest contributors to your returns in the base case.

2. Operational Improvement Scenarios

3. Debt Structure Scenarios

4. Combined Sensitivity Analysis: IRR by EBITDA Growth and Leverage

5. Dividend Recapitalization Scenario

If market conditions are favorable in Year 3, you could consider a dividend recapitalization:

This analysis shows that while higher leverage increases IRR, it also increases risk. Operational improvements have a more sustainable impact on returns, particularly revenue growth.

Would you like me to focus on any specific aspect of this analysis in more detail?

Debt covenants are critical in LBO transactions, especially for retail companies where performance can fluctuate seasonally. Let me help you structure appropriate covenants that balance lender security with operational flexibility.

Recommended Covenant Structure for Retail LBO

1. Leverage Ratio Covenant

Analysis: This step-down structure gives you time to implement operational improvements while gradually deleveraging. For a retail business, this is more reasonable than an aggressive step-down that doesn't account for seasonality.

2. Interest Coverage Ratio

Analysis: This covenant ensures the business maintains sufficient earnings to cover interest payments, but starts conservatively to give you implementation time.

3. Fixed Charge Coverage Ratio

Fixed Charges = Interest Expense + Required Principal Payments + Capital Lease Payments

Analysis: Particularly important for retail with significant lease obligations.

4. Capital Expenditure Limitations

Analysis: Sets reasonable limitations while allowing for store refreshes and expansions. The carryforward provision gives flexibility to defer investments if needed.

5. Minimum Liquidity Requirement

Analysis: Ensures adequate cash cushion, especially important during inventory build-up periods.

6. Covenant Testing and Cushions

7. Covenant Flexibility Provisions

Would you like me to explain any of these covenants in more detail or discuss how to model their impact on your flexibility during the holding period?