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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

A private equity sponsor buys Kaveri Plastics in an LBO for Rs 120 crore, funded by Rs 80 crore debt and Rs 40 crore equity. Over five years, the company repays Rs 30 crore of the debt from cash flows. At exit, the enterprise is sold for Rs 180 crore. Ignoring interim dividends and costs, what is the sponsor's equity value at exit and the multiple of money (MoM) on the initial equity?

Debt falls to Rs 50 crore after the Rs 30 crore repayment, so exit equity is 180 minus 50, which is Rs 130 crore. Dividing by the initial equity of Rs 40 crore gives a multiple of money of 3.25 times.

  1. ARs 130 crore; 3.25 timesCorrect
  2. BRs 100 crore; 2.5 times
  3. CRs 180 crore; 4.5 times
  4. DRs 150 crore; 3.75 times

Explanation

Debt at exit = 80 - 30 = Rs 50 crore. Equity value = 180 - 50 = Rs 130 crore. MoM = 130/40 = 3.25 times. Rs 100 crore results from deducting the original Rs 80 crore debt, ignoring repayment.

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