In LBO initial valuation, which approach calculates the total offer value first?

In LBO initial valuation, which approach calculates the total offer value first?

• A. Explicit EBITDA Multiple
• B. Explicit offer/share
• C. Discounted cash flow
• D. Asset-based valuation

Answer: (B)

In an LBO, the starting point is the amount you’re willing to offer to acquire the target’s equity. That total offer value is determined by the price per share you propose multiplied by the total number of shares outstanding (often with adjustments for options or other securities). This explicit offer per share approach directly yields the equity value you’re signaling to shareholders, and it sets the basis for how much debt you can raise and what kind of returns the sponsor can target. Other valuation methods—like using an EBITDA multiple, discounting cash flows, or valuing assets on a net asset basis—are useful for benchmarking or internal valuation, but they don’t represent the upfront price you are committing to pay for the equity in the deal. They inform what the company might be worth in different scenarios, not the concrete offer you’re presenting.

In an LBO, the starting point is the amount you’re willing to offer to acquire the target’s equity. That total offer value is determined by the price per share you propose multiplied by the total number of shares outstanding (often with adjustments for options or other securities). This explicit offer per share approach directly yields the equity value you’re signaling to shareholders, and it sets the basis for how much debt you can raise and what kind of returns the sponsor can target. Other valuation methods—like using an EBITDA multiple, discounting cash flows, or valuing assets on a net asset basis—are useful for benchmarking or internal valuation, but they don’t represent the upfront price you are committing to pay for the equity in the deal. They inform what the company might be worth in different scenarios, not the concrete offer you’re presenting.