medium · Private Equity value-creation
Why is the 'LBO Floor' valuation often considered the lower bound of a company's value in a competitive M&A process?
- It is the value at which the company's interest coverage ratio falls exactly to 1.0x, tripping a debt covenant.
- It is the liquidation value of the company's hard assets sold off under a forced, distressed scenario.
- It represents the maximum price a financial buyer can pay while still meeting its minimum required IRR.
- It represents the book value of equity plus a fixed control premium that is mandated under law.
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