Valuation · Methodology III of III
Leveraged Buyout — Sponsor Returns
Hypothetical sponsor LBO at the $95 offer price, financed with 6.0x LTM EBITDA of debt. Tests whether a financial buyer could earn target returns — context for Microsoft's strategic premium.
Entry EV / EBITDA
22.5x
LTM at offer
Entry Leverage
6.0x
$25B total debt
Exit Multiple
7.5x
Y5, conservative
Sponsor IRR
18.4%
MoIC 2.32x
Sources & Uses
Sources
Revolver$0.0B
Term Loan B (7Y)$12.0B
Senior Secured Notes$8.0B
Senior Unsecured Notes$5.0B
Sponsor Equity$43.7B
Total Sources$68.7B
Uses
Purchase of ATVI Equity$68.7B
Transaction Fees (1.5%)$1.0B
Total Uses$69.7B
Debt Paydown & Leverage
Debt Schedule
| Year | EBITDA | FCF | Cash Sweep | Net Debt | Leverage |
|---|---|---|---|---|---|
| Close | $2.7B | $0.0B | $0.0B | $25.0B | 9.3x |
| Y1 | $3.2B | $2.6B | $2.6B | $22.4B | 7.0x |
| Y2 | $3.9B | $3.1B | $3.1B | $19.3B | 4.9x |
| Y3 | $4.5B | $3.6B | $3.6B | $15.7B | 3.5x |
| Y4 | $5.1B | $4.1B | $4.1B | $11.6B | 2.3x |
| Y5 | $5.6B | $4.6B | $4.6B | $7.0B | 1.3x |
Returns Waterfall (Y5 Exit)
IRR
18.4%
MoIC
2.32x
Hold
5.0y
IRR Sensitivity
Rows: Exit Multiple · Cols: Y5 EBITDA ($B)
| Exit / EBITDA | $8.5B | $9.5B | $10.5B |
|---|---|---|---|
| 6.5x | 12.4% | 16.8% | 21.0% |
| 7.5x | 15.1% | 18.4% | 22.7% |
| 8.5x | 17.9% | 20.6% | 24.5% |
Sponsor target return ≥ 20% IRR — base case underwrites below threshold, which is why ATVI is a strategic, not financial, asset. Microsoft's synergy unlock justifies the premium.