Monthly Archives: March 2022

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Would a company with a capital lease have a higher or lower EV / EBITDA multiple compared to an operating lease?

This depends if the ratio between the capital lease and the lease payment is higher or lower than the EV / EBITDA of the company. A capital lease is like buying the asset with debt. You pay interest and principal repayments. These payments are below EBITDA, meaning they are not treated as operating ...
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How can a PE firm incentivize management to stay and perform?

A PE firm can incentivize management to stay by getting management to put up some equity for the acquisition, also known as management rollover. Usually, management will anywhere from 5-20% of the company to ensure they have “skin in the game.” Another common method to incentivize management is ...
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What is debt sizing in project finance? (1 min)

Debt sizing is used in project finance (infrastructure) to figure out how much debt can be raised to support an infrastructure project each month / year. As dictated by the debt term sheet, there is usually a maximum leverage ratio (eg maximum of 70% debt and 30% equity) and a minimum debt service c...
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What are the advantages and disadvantages of leading a deal by yourself vs. doing the deal with other PE firms as partners?

The advantage of being the only PE firm involved in the LBO is that you have complete control. You can dictate the type of debt financing to be raised and take full control when negotiating the financing terms with banks / institutions. You can choose whether or not to hire an investment bank as an ...
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How does a capital call affect IRR?

A capital call is when a portfolio company needs to go back to its investor(s) to ask for more equity investment. This could be to finance an add-on acquisition or a new growth strategy. A capital call may also occur if the company is simply low on cash and needs more capital to stay afloat [&hellip...
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Why would a PE firm choose to do a sale-leaseback after acquiring a company?

A sale-leaseback involves selling property ownership to a third party and then renting that property back from that third party at a rate that was previously agreed upon. This is also a common way to generate cash to fund other projects. Companies may also wish to do this to reduce their real estate...
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