Skip to content

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

Sundaram Capital plans an LBO of Kaveri Foods Ltd. for an enterprise value of ₹200 crore. The deal is funded with 70% debt and the balance sponsor equity. After five years the enterprise value is ₹300 crore and the outstanding debt has been repaid down to ₹60 crore. Ignoring interim dividends and fees, what is the sponsor's money multiple on equity (exit equity ÷ initial equity)?

Sponsor equity is ₹60 crore (30% of ₹200 crore). At exit, equity value is ₹300 crore less ₹60 crore debt, which is ₹240 crore. The money multiple is 240 divided by 60, equal to 4.0 times.

  1. A4.0 timesCorrect
  2. B3.5 times
  3. C5.0 times
  4. D2.14 times

Explanation

Initial debt = 70% × 200 = ₹140 crore; sponsor equity = ₹60 crore. Exit equity = 300 − 60 = ₹240 crore. Multiple = 240/60 = 4.0 times. Using 300/200 = 1.5 or 300/140 = 2.14 ignores the debt structure. Subtracting the original debt of 140 instead gives 160/60 = 2.67, also wrong.

Did you get it right without looking?

One question tells you little. A timed set on Mergers, Acquisitions and Corporate Restructuring shows your real accuracy, how long you take and where you lose marks.

Practise Mergers, Acquisitions and Corporate RestructuringFree diagnostic mock

More Mergers, Acquisitions and Corporate Restructuring questions