LBO Valuation Model

The LBO Valuation Model operates on your five-year financial forecast. The model's purpose is to estimate the current value of your business to a "financial buyer", based on your businesses' forecasted financial performance. Your already-completed five-year financial forecast, plus two assumptions, is all that is necessary to create your first draft of a comprehensive LBO valuation of your business.

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From a processing standpoint the LBO model makes a copy of your already completed five-year forecast and uses that copy (and any changes you make to it) for projecting future operating results. As such, your original forecast is preserved.

The LBO Valuation Model analyzes the value of your business from the point of view of a "financial buyer" who owns no other businesses in your industry and, therefore, expects all of its investment return to result solely from the future operations of the business. The LBO Valuation Model assumes that the buyer has investigated your business and operating plan and believes your business will achieve the financial results you have forecasted.

From a timing standpoint, the LBO Valuation Model assumes that the financial buyer intends to purchase your business at the beginning of year two (2) of your five-year forecast; and intends to own your business for the ensuing four (4) years, and then sell the business.

In order to generalize the analysis across a potentially infinite range of "deal" attributes, the model assumes the financial buyer is buying only the assets of your business and assuming none of its liabilities. Therefore, the seller of the business (i.e., you) needs to payoff all of the liabilities of the business (and in all likelihood, the income tax owed as a result of the gain realized on the sale of the assets) from purchase price paid to you by the financial buyer.

The output of the LBO Valuation Model consists of:

LBO Valuation Model - Sample Data

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