LBO Valuation Using Flows to Equity

Ian A. Cooper and Kjell Nyborg
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Ian A. Cooper: London Business School

No 23-74, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The flows to equity method is commonly used in leveraged buyouts and other highly levered transactions. These flows are hybrid flows, mixing expected operating cash flows with promised debt payments under a planned debt schedule. Because of this, it is difficult to accurately estimate the appropriate discount rate, a difficulty that is compounded by the typically changing leverage over time under the planned debt schedule. We show how the flows to equity approach works and discuss its benefits and drawbacks as compared with other, ‘more standard’ methods.

Keywords: LBO modelling; Equity free cash flow; Hybrid flows; Discount rate; Leverage (search for similar items in EconPapers)
Pages: 11 pages
Date: 2023-09
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2374

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