Deal Lab · Buyout model 1.0
Tencent Holdings Limited Buyout Model
A buyout of Tencent Holdings Limited on its published figures for fiscal 2025, in renminbi: revenue flat, the margin and the shares of revenue of that period, entry and exit at 10.0x EBITDA, exit after 5 years.
Returns
Internal rate of return
4.5%
Multiple of money
1.25x
Sponsor's equity
RMB1.56tn
Enterprise value
RMB3.08tn
Proceeds at exit
RMB1.95tn
Sources and Uses
| Uses | Amount |
|---|---|
| Equity price | RMB2.96tn |
| Borrowings refinanced | RMB388bn |
| Transaction costs | RMB61.5bn |
| Financing fees | RMB30.4bn |
| Minimum cash | RMB15.0bn |
| Uses | RMB3.46tn |
| Sources | Amount |
|---|---|
| Senior loan | RMB1.14tn |
| Subordinated notes | RMB380bn |
| Cash of the company | RMB378bn |
| Sponsor's equity | RMB1.56tn |
| Sources | RMB3.46tn |
Projection
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Revenue | RMB752bn | RMB752bn | RMB752bn | RMB752bn | RMB752bn | RMB752bn |
| EBITDA of the case | RMB308bn | RMB308bn | RMB308bn | RMB308bn | RMB308bn | RMB308bn |
| Cash cost of leases | RMB7.5bn | RMB7.5bn | RMB7.5bn | RMB7.5bn | RMB7.5bn | RMB7.5bn |
| Depreciation and amortisation | RMB66.0bn | RMB66.0bn | RMB66.0bn | RMB66.0bn | RMB66.0bn | |
| Capital expenditure | RMB71.6bn | RMB71.6bn | RMB71.6bn | RMB71.6bn | RMB71.6bn | |
| Increase in working capital | RMB0 | RMB0 | RMB0 | RMB0 | RMB0 | |
| Interest | RMB108bn | RMB103bn | RMB96.7bn | RMB90.4bn | RMB83.9bn | |
| Tax | RMB33.2bn | RMB34.6bn | RMB36.1bn | RMB37.6bn | RMB39.2bn | |
| Cash available for debt service | RMB195bn | RMB194bn | RMB192bn | RMB191bn | RMB189bn |
Debt Schedule
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Senior loan | RMB1.14tn | RMB1.05tn | RMB961bn | RMB865bn | RMB765bn | RMB660bn |
| Subordinated notes | RMB380bn | RMB380bn | RMB380bn | RMB380bn | RMB380bn | RMB380bn |
| Revolving facility | RMB0 | RMB0 | RMB0 | RMB0 | RMB0 | RMB0 |
| Cash | RMB15.0bn | RMB15.0bn | RMB15.0bn | RMB15.0bn | RMB15.0bn | RMB15.0bn |
| Debt to EBITDA | 5.00x | 4.72x | 4.42x | 4.11x | 3.78x | 3.44x |
| EBITDA to interest | 2.84x | 3.00x | 3.18x | 3.40x | 3.67x |
Covenants and the Credit View
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Limit of debt to EBITDA | 6.50x | |||||
| Lease-adjusted debt to EBITDA | 5.00x | 4.72x | 4.42x | 4.11x | 3.78x | 3.44x |
| Band of debt to EBITDA | Highly leveraged | Aggressive | Aggressive | Aggressive | Significant | Significant |
Return Bridge
| Amount | |
|---|---|
| Sponsor's equity | RMB1.56tn |
| EBITDA growth | RMB0 |
| Change of multiple | RMB0 |
| Net debt repaid | +RMB480bn |
| Non-controlling interests | RMB0 |
| Costs at closing | −RMB91.9bn |
| Management and limited liability | RMB0 |
| Proceeds at exit | RMB1.95tn |
Sensitivity Tables
| Entry by exit | 8.00x | 9.00x | 10.0x | 11.0x | 12.0x |
|---|---|---|---|---|---|
| 8.00x | 7.3% | 11.6% | 15.4% | 18.7% | 21.7% |
| 9.00x | 1.4% | 5.7% | 9.4% | 12.6% | 15.5% |
| 10.0x | −3.1% | 1.0% | 4.5% | 7.7% | 10.5% |
| 11.0x | −6.6% | −2.6% | 0.8% | 3.8% | 6.5% |
| 12.0x | −9.4% | −5.6% | −2.3% | 0.6% | 3.2% |
| Debt by growth | −4.0% | −2.0% | 0.0% | 2.0% | 4.0% |
|---|---|---|---|---|---|
| 4.00x | −2.1% | 1.4% | 4.7% | 7.9% | 10.9% |
| 4.50x | −2.9% | 1.0% | 4.7% | 8.1% | 11.3% |
| 5.00x | −3.9% | 0.5% | 4.5% | 8.3% | 11.8% |
| 5.50x | −5.2% | −0.1% | 4.4% | 8.6% | 12.4% |
| 6.00x | −6.9% | −0.9% | 4.3% | 8.9% | 13.1% |
Solvers
Highest entry multiple for a return of 20.0%
n/a
No entry multiple reaches the target
Revenue growth a year for a return of 20.0%
9.0%
The target return
Debt capacity at closing, times EBITDA
6.00x
The loan to value limit
Assumptions and Their Origins
| Group | Assumption | Value | Origin |
|---|---|---|---|
| Transaction | Entry multiple | 10.0x | Convention of buyout 1.0 |
| Transaction | Years to exit | 5 years | Convention of buyout 1.0 |
| Transaction | Transaction costs | 2.0% | Convention of buyout 1.0 |
| Transaction | Financing fees | 2.0% | Convention of buyout 1.0 |
| Transaction | Minimum cash, of revenue | 2.0% | Convention of buyout 1.0 |
| Financing | Debt at closing, times EBITDA | 5.00x | Convention of buyout 1.0 |
| Financing | Debt at most, of the enterprise value | 60.0% | Convention of buyout 1.0 |
| Financing | Senior loan, of the new debt | 75.0% | Convention of buyout 1.0 |
| Financing | Senior loan repaid each year | 1.0% | Convention of buyout 1.0 |
| Financing | Cash sweep | 100% | Convention of buyout 1.0 |
| Financing | Revolving facility, times EBITDA | 1.00x | Convention of buyout 1.0 |
| Financing | Base rate | 3.0% | Policy rate of China, BIS central bank policy rates, 19 October 2026 |
| Financing | Senior loan spread | 3.5% | Convention of buyout 1.0 |
| Financing | Subordinated notes spread | 6.0% | Convention of buyout 1.0 |
| Financing | Revolving facility spread | 3.0% | Convention of buyout 1.0 |
| Financing | Covenant headroom on debt to EBITDA | 30.0% | Convention of buyout 1.0 |
| Financing | Minimum EBITDA to interest | 2.00x | Convention of buyout 1.0 |
| Operations | Revenue growth a year | 0.0% | Convention of buyout 1.0 |
| Operations | EBITDA margin | 40.9% | EBITDA over revenue, fiscal 2025 |
| Operations | Cash cost of leases, of revenue | 1.0% | Cash cost of leases over revenue, fiscal 2025 |
| Operations | Depreciation and amortisation, of revenue | 8.8% | Depreciation and amortisation over revenue, fiscal 2025 |
| Operations | Capital expenditure, of revenue | 9.5% | Median capital expenditure over revenue, fiscal 2023 to 2025 |
| Operations | Working capital, of revenue | −9.4% | Working capital over revenue, end of the fiscal 2025 |
| Operations | Leases as debt | Yes | Leases as debt, the basis of the credit metrics |
| Operations | Share-based pay added back | No | Convention of buyout 1.0 |
| Taxes | Tax rate | 25.0% | Combined statutory rate of corporate income tax of China, OECD Corporate Tax Statistics, 2026 |
| Taxes | Interest deducted up to 30% of EBITDA | No | Convention of buyout 1.0 |
| Exit | Exit multiple | 10.0x | Convention of buyout 1.0 |
| Exit | Management share of the proceeds | 0.0% | Convention of buyout 1.0 |
| Exit | Target return | 20.0% | Convention of buyout 1.0 |
Inputs and Their Documents
Published figures of fiscal 2025, each with the documents it comes from.
| Input | Value | Method | Documents |
|---|---|---|---|
| Adjusted EBITDA | RMB308bn | Adjusted EBITDA of the company page | Annual report 2025-12 |
| Share-based pay | RMB0 | No share-based pay is reported | Annual report 2025-12 |
| EBITDA after share-based pay | RMB308bn | Adjusted EBITDA less share-based pay | Annual report 2025-12 |
| Depreciation and amortisation | RMB66.0bn | Depreciation and amortisation of adjusted EBITDA | Annual report 2025-12 |
| Revenue | RMB752bn | Revenue of the base period | Annual report 2025-12 |
| Borrowings | RMB388bn | Total debt less lease liabilities | Annual report 2025-12 |
| Lease liabilities | RMB18.7bn | Lease liabilities | Annual report 2025-12 |
| Cash and short-term investments | RMB378bn | Cash and short-term investments | Annual report 2025-12 |
| Non-controlling interests | RMB86.9bn | Non-controlling interests | Annual report 2025-12 |
| Receivables | RMB49.9bn | Receivables | Annual report 2025-12 |
| Payables | RMB121bn | Payables | Annual report 2025-12 |
| Inventories | RMB530m | Inventories | Annual report 2025-12 |
| Payments of lease liabilities | RMB6.8bn | Payments of lease liabilities | Annual report 2025-12 |
| Interest on lease liabilities | RMB695m est. | Interest on lease liabilities at the average rate of finance costs on total debt | Annual report 2025-12 |
| Capital expenditure | RMB87.5bn | Capital expenditure of the latest fiscal year | Annual report 2025-12 |
Checks of the Model
- Sources equal uses
- The equity price is above nil
- The sponsor's equity is above nil
- Each balance of debt stays between nil and its amount at closing
- Cash is the cash of the year before and the cash flow of the year
- Cash stays at the minimum unless a shortfall is stated
- The 6 parts of the bridge add up to the proceeds less the sponsor's equity
- The cash flows at the internal rate of return have a present value of nil
Deal Lab computes arithmetic on published figures and on the assumptions of the user. It values no company, recommends no transaction and forecasts no result.