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Leveraged Buyouts: A Practical Guide to Investment Banking and Private Equity, + Website by Paul Pignataro

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PART One

Leveraged Buyout Overview

Aleveraged buyout (LBO) is a fundamental, yet complex acquisition commonly used in the investment banking and private equity industries. We will take a look at the basic concepts, benefits, and drawbacks of a leveraged buyout. We will understand how to effectively analyze an LBO. We will further analyze the fundamental impact of such a transaction and calculate the expected return to an investor. Last, we will spend time interpreting the variables and financing structures to understand how to maximize investor rate of return (IRR).

The three goals of this part are:

1. Understanding leveraged buyouts (leveraged buyout theory).
  • Concepts.
  • Purposes and uses.
2. Valuation overview (What is value?)
  • Book value, market value, equity value, and enterprise value.
  • Understanding multiples.
  • Three core methods of valuation:
    i. Comparable company analysis.
    ii. Precedent transactions analysis.
    iii. Discounted cash flow analysis.
3. Ability to understand a simple IRR analysis (leveraged buyout analysis).
a. Purchase price.
b. Sources and uses.
c. Calculating investor rate of return (IRR).

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