Maybe a stupid question but if you are calculating the IRR for a takeover of a public company, what do you include as a cash outflow in Year 0? Do you only include equity (market cap + premium), do you include transaction fees (bankers, lawyers, consultants), and do you include the assumed net debt?
For example, if the target company has a market cap of 100bn and you are paying a 30% premium, has a net debt position of 15bn and you assume transaction fees of 2bn, what would your initial cash outflow be?
A) 130bn of equity
B) 132bn of equity and transaction fees
C) 147bn of equity, transaction fees and net debt
and to complicate if further, if you are assuming the target's net debt, do you consider it to be a cash outflow in year 0 or do you assume you pay it in accordance with the debt schedule, i.e. some of the debt would be in year 0, some in year 1, year 2 etc? Do you handle it differently depending on if you assume or refinance the debt?
The above obviously can have a material effect on IRR but also on value creation and hence my question.
Appreciate any help on this!
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