De redactie
Redactie
Financieel Management

In buyouts, banks lend more on the basis of projected cash flows than the company’s assets and balance sheet structure.

A prerequisite for an appropriate level of leverage is therefore a stable business with strong predictable cash flows. Banks have certain guideline ratios to evaluate the maximum level of debt that can be put in any funding structure.

Two important ratios are ‘total debt to ebitda’ and ‘ebitda to net interest’.

Depending on the business, total debt usually varies between 3 to 6 times ebitda, with a term of five to seven years being typical for acquisition loans, and ebitda to net interest must be above 2.

To support normal business activities and taking into account any seasonality, working capital facilities are also put in place.

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