M&A & Merger Models
How do you determine the maximum cash consideration a buyer can fund? Illustrate: the buyer holds 500 of cash but needs 200 to run the business; pro forma EBITDA is 300; it will not lever beyond 3.0x total debt/EBITDA and already carries 400 of debt.
Model answer
Maximum cash = excess balance-sheet cash + incremental debt capacity. Excess cash = 500 - 200 of minimum operating cash = 300. Debt capacity = 3.0 x 300 = 900 of maximum total debt, minus 400…
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