Which valuation approach calculates the price per share first in an LBO?

Which valuation approach calculates the price per share first in an LBO?

• A. Explicit EBITDA Multiple
• B. Asset-based valuation
• C. Explicit offer/share
• D. DCF analysis

Answer: (C)

In an LBO, the first thing you determine is the price you’re willing to pay for each share of the target. That explicit offer per share sets the equity value you’re buying and, crucially, drives how much debt you can structure around the deal to achieve the sponsor’s target returns. Once you lock in that offer price, you build the rest of the model: financing sources and uses, debt load, cash flows, and the map to the exit to verify the expected IRR. If the proposed offer per share cannot deliver the required returns, you adjust it and iterate. Other valuation methods—like using EBITDA multiples, asset-based values, or a standalone DCF to gauge intrinsic value—are useful for context and benchmarking, but they don’t determine the initial acquisition price in an LBO. The explicit offer per share is the starting point that sets the deal’s equity value and guides the financing structure.

In an LBO, the first thing you determine is the price you’re willing to pay for each share of the target. That explicit offer per share sets the equity value you’re buying and, crucially, drives how much debt you can structure around the deal to achieve the sponsor’s target returns. Once you lock in that offer price, you build the rest of the model: financing sources and uses, debt load, cash flows, and the map to the exit to verify the expected IRR. If the proposed offer per share cannot deliver the required returns, you adjust it and iterate.

Other valuation methods—like using EBITDA multiples, asset-based values, or a standalone DCF to gauge intrinsic value—are useful for context and benchmarking, but they don’t determine the initial acquisition price in an LBO. The explicit offer per share is the starting point that sets the deal’s equity value and guides the financing structure.