Kinda confused when calculating IRR/MoM in LBO, especially when it comes to net debt. When buying the company, you are responsible for refinancing the exisiting net debt (ie the PE firm has to take out bank notes / equity to cover the net debt), but when you are exiting the company, you have to use your own proceeds (EBITDA upon exit x Exit Multiple) to pay off the remaining debt. Why would you having to pay off your own debt when exiting? Why won’t the buyer be on the hook for refinancing

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The irr and mom is based on thr equity proceeds and equity entry which removes the net debt, not the enterprise value

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*Why won’t the buyer be on the hook for refinancing and paying off the net debt, since that is what you had to do when you bought the company?

They are. But it still reduces your proceeds. The amount they use to pay debt is an amount they don’t pay for your equity.

Same as how at entry, the debt you USE to pay for the business reduces the equity dollars you put in.

TEV = Equity + net debt at both entry AND exit

Ebitda x Multiple = enterprise value (value of a company regardless of its capital structure) not equity value. Enterprise value = net debt + equity.

Seller pays their existing debt either way. When you buy it, the $ you would give to seller is reduced by debt (which gets paid off by you). When you sell it, $ you would receive is reduced by your debt (which gets paid off by buyer).

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