Calculator
Pro forma leverage of a build-up
The calculator chains up to four acquisitions on a platform. It gives the pro forma leverage after each one, the debt headroom left under the covenant, the maximum price of each target on its terms and the acquisition at which the covenant blocks.
Final pro forma leverage
4.24x
against 3.50x today
Remaining debt headroom
€0.4m
below the covenant after the last acquisition
Next acquisition
No limit
maximum price on the terms of the last target
The covenant blocks target 3: on its terms, its price cannot exceed €47.1m against an entered price of €50.0m. Equity to contribute across all acquisitions: €45.6m.
| Acquisition | Price | Debt added | Pro forma EBITDA | Pro forma net debt | Pro forma leverage | Debt headroom | Maximum target price | Status |
|---|---|---|---|---|---|---|---|---|
| Target 1 | €32.0m | €19.2m | €24.0m | €89.2m | 3.72x | €12.8m | €218.2m | Met |
| Target 2 | €21.0m | €12.6m | €27.0m | €101.8m | 3.77x | €13.0m | No limit | Met |
| Target 3 | €50.0m | €35.0m | €32.0m | €136.8m | 4.28x | €-0.8m | €47.1m | Breach |
| Target 4 | €18.8m | €9.4m | €34.5m | €146.2m | 4.24x | €0.4m | No limit | Met |
The initial values are sample inputs to replace with your acquisition plan and the terms of your credit agreement. This calculation gives an order of magnitude and commits no lender.
Method
The calculation formulas
Each acquisition adds the EBITDA of the target to that of the group and the debt financed share of the price to its net debt. The standalone leverage of a target is the debt share multiplied by the multiple paid. When it exceeds the covenant, each million of price uses up part of the debt headroom, which sets a maximum price for the target.
Pro forma leverage
Leverage = (net debt + price × share financed by debt) ÷ (group EBITDA + target EBITDA)
Debt headroom
Headroom = covenant × pro forma EBITDA − pro forma net debt
Maximum price of a target
Maximum price = debt headroom before the acquisition ÷ (share financed by debt − covenant ÷ multiple)
Example
Worked example
A platform generates €20.0m of EBITDA for €70.0m of net debt, a leverage of 3.50x under a covenant of 4.25x. Before the third acquisition, pro forma leverage reaches 3.77x. This target, bought at 10.00x its EBITDA and 70.00% financed by debt, takes leverage to 4.28x. The covenant caps its price at €47.1m against a price of €50.0m. After the fourth acquisition, pro forma leverage stands at 4.24x. The figures of this example are sample inputs.
Benchmarks
Leverage of French companies held by a fund
| Indicator | At fund entry | At exit |
|---|---|---|
| Net debt / EBITDA | 3.6x | 2.7x |
| Valuation multiple (EV / EBITDA) | 8.8x | 12.1x |
Sample: 232 transactions, companies with €20m to €500m of revenue at exit, average holding period of 5.1 years.
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