Was there an error in the LBO interview case?
Hi everyone!
Hope you can help me with this one.
A couple of weeks ago I had a private equity interview with a large European private equity fund.
In the interview, I received a ten-page document about a potential LBO investment. In the document, there was a sources and uses table, which I thought, was incorrect.
In the attached file to this question, I have made two table. One table, of how it looked in the case and one table on how I think it should have looked.
Is my table for “sources and uses” correct or am I wrong? If I a wrong, what am I misunderstanding.
Thanks
| Attachment | Size |
|---|---|
| LBO case.pdf 63.51 KB | 63.51 KB |
Note that the numbers are dummy figures - just to keep it confidential.
It looks okay to me...I assume "net debt" is just a paydown of existing debt net of cash?
What's your reasoning to take that and the working cap adjustment out?
Your sources and uses is wrong because you're taking $250mm from the fund to pay for the deal, not $225mm. The $20mm working capital adjustment is a payment that you need to make, i.e. it isn't in your favor. So you have to take $250mm in cash and pay out $20mm. That's completely different than just raising $230mm. Same thing for the debt and fees.
I'm not sure why you think you can just get rid of the working capital and debt adjustments? Those are things you have to pay per the table you provided.
agree with this
Yes, for clarity when I said "it looks okay" I mean the case study as assigned looks okay. You don't get extra inventory for free, and you don't get someone else to pay down the debt for you.
I just can't possibly understand why OP would take those out?
This shit just pisses me off. I'd never get interviews at large buy side institutions like this yet people who can't do this shit do.
Apologies for the rant, we all got hosed at bonus time.
I would be very surprised if a large fund would mess up their LBO case like that.
Lol... Think OP needs to go back to the basics
Hi guys,
Thanks for your input!
I agree on the 5 million in the uses side of the table as you pay back existing debt.
But I do not think the fund should pay for the net working capital adjustment, since it is just a purchase price mechanism to our funds favor. The only time it should be included in my head, is if the company needs extra cash to operate going forward.
By the way: I did pass the test, the only wanted to see was if I knew how to build and income statement, cash flow and balance sheet.
But it isn't a purchase price adjustment in your favor. That's why it's a use, because you have to pay it.
Yeah, again...you don't get extra inventory or A/R for free. You have to pay for it..
Maybe it's a negotiation point but if you're going to get an irregular $20 million two months after you sign as a seller I would want to get compensated for that or else I just wait two months to get the adjustment then sell
dude what? you may have passed the case study but you dont get inventory or AR for free.... if you owned a business, would you give these away?
Based on what was mentioned, my conclusion is that it was a negotiation point.
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