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LBO Valuation Using Flows to Equity

Author

Listed:
  • Ian A. Cooper

    (London Business School)

  • Kjell G. Nyborg

    (University of Zurich; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); Swiss Finance Institute)

Abstract

The flows to equity method is commonly used in leveraged buyouts and other highly levered transactions. These flows are hybrid flows, mixing expected operating cash flows with promised debt payments under a planned debt schedule. Because of this, it is difficult to accurately estimate the appropriate discount rate, a difficulty that is compounded by the typically changing leverage over time under the planned debt schedule. We show how the flows to equity approach works and discuss its benefits and drawbacks as compared with other, ‘more standard’ methods.

Suggested Citation

  • Ian A. Cooper & Kjell G. Nyborg, 2023. "LBO Valuation Using Flows to Equity," Swiss Finance Institute Research Paper Series 23-74, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2374
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