A private equity firm is guaranteed to receive 80% of the residual value of a leveraged buyout investment, with the remaining 20% owing to management. The initial investment is $500 million, and the deal is financed with 70% debt and 30% equity. The projected EBITDA multiple is 3.0. The equity component consists of: $120 million preference shares. $25 million private equity firm equity. $5 million management equity. At exit in 5 years, EBITDA is expected to be $400 million, the value of debt is $150 million and the value of preference shares is $300 million. Calculate (i) The payoff multiple (cash-on-cash return) for the private equity firm and for management, respectively (ii) The IRR (compound annual rate of return) of the PE firm
A private equity firm is guaranteed to receive 80% of the residual value of a leveraged buyout investment, with the remaining 20% owing to management. The initial investment is $500 million, and the deal is financed with 70% debt and 30% equity. The projected EBITDA multiple is 3.0. The equity component consists of:
$120 million
$25 million private equity firm equity.
$5 million management equity.
At exit in 5 years, EBITDA is expected to be $400 million, the value of debt is $150 million and the value of preference shares is $300 million.
Calculate
(i) The payoff multiple (cash-on-cash return) for the private equity firm and for management, respectively
(ii) The
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