hard · Private Equity & LBOs
An analyst is reconciling two LBO models. Model A assumes a stock purchase (no tax shield). Model B assumes an asset purchase with a 150.0x million tax step-up (15-year amortization).
If both models have the same entry multiple and EBITDA growth, why does Model B show a higher IRR?
- Lower cash taxes lead to higher FCF, which accelerates debt paydown.
- The asset deal allows for a higher entry leverage multiple.
- Asset deals always have lower transaction costs.
- Higher depreciation and amortization (D&A) increase the exit EBITDA.
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