medium · Private Equity paper-lbo
A sponsor acquires a business for 8.0x EBITDA and intends to achieve a 20% IRR over a 5-year hold.
If EBITDA remains flat and there is no multiple expansion, what must happen to generate the target return?
- The company must fully pay down all of its outstanding debt.
- The sponsor must ultimately sell the company for a much higher price.
- The sponsor must use high financial leverage and debt paydown.
- The sponsor must sharply increase its annual Capital Expenditures.
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