Category Archives: Private Equity

Home Archive by category "Private Equity"

If Company A is 30% equity, 70% debt currently, but will have a capital structure of 50% equity, 50% debt in year 5, which capital structure do you use for your DCF?

The 50/50% capital structure would be used. When calculating WACC, we assume the target capital structure, which is the capital structure the company will have in the long term. This is because the value of a company is determined by its future cash flows, and not its current cash flows, so the long...
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Do private equity companies add more value to portfolio companies through their ability to do financial engineering and take on more debt, or do they add more value to their portfolio companies by enhancing their strategy? (1 min)

Enhancing strategy adds more value as the impact is far more permanent than temporarily playing around with the capital structure. Strategic shifts may last a lifetime, while capital structure changes will only affect the company until the PE firm sells the company. This is often asked by mid-market...
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Would a company with a capital lease have a higher or lower EV / EBITDA multiple compared to an operating lease? (1 min)

A company with a capital lease would have a lower EBITDA multiple. A capital lease involves paying interest and principal repayments, which are both cash flows that happen below EBITDA. EBITDA would be higher as a result, and since EBITDA is in the denominator of EV / EBITDA, the multiple would be l...
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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? (1 min)

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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