medium · Investment Banking
SteelBridge Manufacturing is acquired in an LBO at 6.0x EBITDA. 40% of the deal is funded with equity.
If the company performs exactly as projected and is sold after 5 years at the same 6.0x multiple, what is a primary driver of the IRR being above 0%?
- A gradual decrease in the corporate tax rate applied over the holding period.
- Distributing annual dividends to the common equity holders each year.
- Deleveraging through the use of free cash flow to pay down debt principal.
- Multiple expansion from the 6.0x entry multiple up to a higher exit multiple at sale.
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