Why capex and debt maturities can break an LBO
Two deals with the same EBITDA and leverage can have very different cash risk. Capex, working capital, debt terms and cash access determine whether the financing survives.
A worked capex comparison
Invented example: year-one revenue is ₹1,070 crore, EBITDA ₹214 crore, cash interest ₹60 crore, cash taxes ₹25 crore and working-capital investment ₹5 crore. Ignore cash interest income and minority distributions for this comparison.
| Assumption | Capex 5% of revenue | Capex 15% of revenue |
|---|---|---|
| Capital expenditure | ₹53.5 cr | ₹160.5 cr |
| Cash before principal | ₹70.5 cr | −₹36.5 cr |
| After ₹30 cr mandatory principal | ₹40.5 cr available | ₹66.5 cr funding need |
A 10-point capex difference consumes ₹107 crore of cash. New revolver draws also create interest costs, so the commitment must cover more than the initial deficit.
A maturity is larger than routine amortisation
A ₹200 crore loan with 5% annual amortisation repays ₹10 crore per year before maturity, subject to the remaining balance. In its maturity year, the remaining balance is due. A model that assumes perpetual refinancing can overstate equity proceeds.
Stress scenarios to keep visible
- Revenue growth slows and EBITDA margin falls together
- Maintenance and committed expansion capex remain high
- Working-capital days worsen despite revenue growth
- Interest rises and the revolver limit stays fixed
- A facility matures before the planned exit
- Consolidated subsidiaries cannot distribute the expected cash
- Exit valuation falls while debt remains outstanding
What a failed case should show
Show the year, required cash, available commitment and unfunded amount. Keep the deficit visible. Do not calculate an equity IRR after a financing failure as if another lender automatically appears.
Change capex and debt in the free example