hard · Investment Banking

Why do analysts usually add back Stock-Based Compensation (SBC) when calculating EBITDA for a 'Cash Flow' LBO model, but often do not add it back when calculating 'Trading Multiples' for peer comparison?

1. In an LBO, the management team is usually replaced, so SBC is assumed to drop to zero post-close.
2. LBO models focus on the actual cash available for debt service, whereas trading multiples require consistency in treating SBC as an operating expense across peers.
3. SBC is tax-deductible in an LBO but not for public companies, creating a difference in EBITDA calculations.
4. Public markets require the add-back to comply with GAAP, while LBO models use 'Adjusted' figures for simplicity.

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