how might the fact that a stapled financing package offering debt financing equal to 4.0x ltm ebitda with a one third minimum equity contribution affect a strategic buyer's bid?

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15-11-2022
Business

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how might the fact that a stapled financing package offering debt financing equal to 4.0x ltm ebitda with a one third minimum equity contribution affect a strategic buyer's bid?

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Bhuvangarg Bhuvangarg · Answer 1 · 2022-11-21T12:40:50+01:00

A staple offered loan financing at 4.0x LTM EBITDA with a minimum equity commitment of 33%, the purchase price would need to be at least 6.0x LTM EBITDA because the enterprise value multiple is 6.0x/67% = 4.0x when debt financing is at 67% of the price.

What is the process for equity contribution?

Equity contributions are investments made by owners in assets that represent unrestricted ownership interests. The concept is applied in a variety of contexts, such as loan agreements and corporate ownership stakes. It is also important while buying real estate.

In the above answer by identifying a leverage level that can be used as the basis for evaluating a purchase price, the staple may, in part, help to offer a value floor for the target.

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