Leveraged buyout debt and cash flow
The degree of leveraged financing is reflected in a commonly used financial measure, the leverage ratio. This ratio compares the borrower s total debt from all sources to cash flow, which is typically calculated as earnings before interest, taxes, depreciation and amortization (EBITDA). Among the Lords of Leverage in the private equity industry, leverage ratios prior to the unfolding credit crisis indicate the degree of debt involved in typical private equity acquisitions.
|Private Equity Firm||Leverage Ratio|
|Madison Dearborn Partners||11.8|
|Providence Equity Partners||11.0|
|Thomas H. Lee Partners||10.3|
|Goldman Sachs Group||9.5|
|Kohlberg Kravis Roberts||7.5|
The data above shows the average amount of debt committed to an acquisition relative to the target s EBITDA. It includes announced U.S. acquisitions of more than US$100 million from January 1, 2005, to September 12, 2007, for which merger agreements were available.
Source: “Madison Dearborn Beats Blackstone, Goldman Sachs as Deals Stall”, Jason Kelly, Bloomberg, October 1, 2007Sep 08, 2008 – Alex Ivanou