6 Free Financial Modeling Lessons...and More.

Enter your e-mail below to get our new Free Modeling Tutorials ($200+ Value).

LBO
 

LBO Modeling - Transaction Fees?

Highly Leveraged's picture
IB
(Monkey, 61
 
Points)
 on 4/25/13 at 7:11pm

Quick question if someone can please help. In an LBO scenario, transaction Fees are expensed on the B/S (coming out of Shareholder's Equity) but does that mean they reflected on the Income Statement as well (as a one-time charge in Year 1)?

Financial Modeling Lesson: Building a Leveraged Buyout Model (LBO)

Thank you to our friends over at Wall Street Prep, here is a bit more detail on how to build an LBO in case my e-mail didn't give you enough background (remember, as part of the WSO Modeling Series you can get $100 off the Premium Financial Modeling Package or 20% off any other self-study courses...this deal is nowhere else and will expire soon):

Milestone Partners

Lame Duck Analyst's picture
(Monkey, 34
 
Points)
 on 3/9/13 at 3:29pm

Has anyone heard of Milestone Partners in Philadelphia, PA? If anyone has any experience interviewing with them, what was the experience like? Any insight on the firms reputation, culture, pay, hours, etc. would be greatly appreciated. Thank you in advance for your help.

PE Case Question -- PIK Preferred and Seller Note (And Returns)

jn525's picture
(Chimp, 10
 
Points)
 on 3/4/13 at 3:32pm

Got a sample PE case from a friend of mine and had a couple of questions.

The case is laid out as a majority recap financed with:

Senior bank debt,
Sponsor participating preferred with both PIK and cash annual dividends (80% common equity ownership)
Seller note

Owner in turn gets similar participating preferred with both PIK and cash dividends (20% of common).

Owner also receives an initial cash payment, and will hold the seller note.

Couple of questions here:

Olympus partners? Any info?

kyleyboy's picture
HF
(Gorilla, 741
 
Points)
 on 1/4/13 at 8:35am

Hey, does anyone know anything about Olympus Partners?

LBO model prep

craigje1992's picture
PE
 
Points)
 on 12/26/12 at 7:10pm

What finance concepts should I brush up on before learning how to do the LBO model?

modeling exam "assume total market leverage"

mooseofplenty's picture
(Chimp, 6
 
Points)
 on 12/2/12 at 4:45pm

I recently took a modeling exam where I was instructed to assume that senior lender would provide term loan and revolver at "total market leverage and pricing." I translated this to mean current average leverage ratio and rates. I assumed total leverage for revolver + senior facility of 3.5x EBITDA. Also assumed revolver rate was LIBOR + 3.5% and senior term rate was LIBOR + 5%. Kind of pulled these #s out of my ass based on my limited understanding of roughly where the rates are today. Do these assumptions look reasonable to you guys? How would you go about estimating if you had 2 hours to build a 3 statement model?

Model unbalanced by decimal places

Solaxun's picture
HF
 
Points)
 on 11/20/12 at 10:28am

I have a model I developed that is of medium complexity, and I have an interesting problem that I am not sure how to resolve, thought I'd hit you guys up to see if anyone has dealt with this before.

LBO Models in Your Head

couchy's picture
(King Kong, 1,365
 
Points)
 on 11/20/12 at 11:05am
lbo-model-case-study.jpg

Has anyone ever been asked to do an LBO and M&A models off the top of their head? Pen & Paper given with financials on a sheet but not much time (around 3 minutes) to calculate and walk through answer. Basically you have to calculate as you go through.

Net Working Capital Question

sweetmelon's picture
(Monkey, 55
 
Points)
 on 9/16/12 at 11:25am

I know there's a bunch of threads on NWC. But I couldn't find one to address my question:

If there is negative changes in nwc, then cash flow increases.

This is a good thing, right?

But when there is negative NWC, it could mean that firm will go bankrupt, (current assets cannot cover current liabilities).

So is it a good thing for NWC to have negative changes year over year? (it increases the value based on valuation methods such as DCF, but doesn't it also mean that the company is not doing so well?)

Thanks in advance!

What are some common acronyms used on WSO?

If you are confused by all the lingo getting thrown around Wall Street and the WSO forums, you've come to the right place. We know it can be confusing but don't worry, we are here to help! Below you will find a comprehensive list of finance acronyms for words and phrases in finance. This is a great place to start so that you can follow along in forum discussions easily.

-AM (Asset Management): Refers to the industry which manages assets, whether institutional or personal (PWM, PB)

Stub Period

Oreos's picture
HF
(Neanderthal, 2,459
 
Points)
 on 8/21/12 at 4:42am

Hi all,

Stub period income, cash flow and balance sheet; are they required for an LBO modelling test (2/3hrs)? It shouldn't make a difference on an IRR calc (assuming you're using XIRR, the right dates, and no dividends), and can generally be an arse to get right first time on the BS / CF, so i'm siding with not bothering..

Cheers

What happens after an LBO?

Beretta's picture
ST
(Orangutan, 358
 
Points)
 on 7/19/12 at 1:00am
after an lbo.jpg

After you do an LBO, does the PE firm have complete control over the acquired company's operations? Does the PE firm perhaps insert one of their own guys into the company's management to help run it? or does the acquired company continue to do their own thing, without intervention?

I've checked out study guides and while they teach you how an LBO model works, no one bothers telling me what happens after the company is acquired. Can anyone elaborate? Thanks!

LBO - Seller's Note?

Banker88's picture
IB
(King Kong, 1,650
 
Points)
 on 7/10/12 at 7:17pm

Just took an LBO modeling exam for an interview and had a question. Part of the financing was a seller's note at 0.5x leverage (in addition to a revolver and term loan). I was fine with setting up the sources and uses, but was not sure how the seller's note gets treated in the debt calcs and IRR.

The exam said that the seller's note gets paid out only if EBITDA reaches a certain level. Does it get included in net debt that gets subtracted out to reach equity value in the exit year? Or if it gets paid out then what happens? Thanks.

Barbarians at the Gate

BTbanker's picture
IB
 
Points)
 on 6/18/12 at 8:43pm

BBY (Best Buy) LBO Candidate?

mhurricane's picture
 
Points)
 on 6/15/12 at 9:59pm

When looking at BBY's valuation multiples (EV/EBITDA, P/E) they are at historical lows. It would be the opportune time for a buyout if a megafund wanted to pursue it.

However, can Best Buy's model be refined to one that is economically viable in the future? They are losing out to e-commerce sites like amazon, ebay, etc.

Do you think their online platform can be enhanced to compete with these guys who have already established their e-commerce model?

Growth Equity vs. LBO Shops

ryanmonkey86's picture
IB
(Monkey, 43
 
Points)
 on 6/14/12 at 12:00pm

which is more interesting and respected? growth equity or LBO shops? why?

Analyzing Capital Structure

terminator's picture
(Chimp, 5
 
Points)
 on 6/13/12 at 3:28am

Hi,

I am unsure of how to properly analyse the capital structure of a firm instead of just looking at how much debt and equity the firm has. I need a proper framework. Anyone has any ideas? Is a Leveraged Buyout Model useful as a framework?

Cheers!

Question on LBO Financing

prospective_monkey's picture
(Monkey, 32
 
Points)
 on 6/5/12 at 5:15pm

Hi guys,

I got a question regarding LBO Financing.

Consider:

(1) A PE firm collects cash in one of its funds, say fund A that has now money for more than one acquisition.
(2) The firm finds an attractive target T and wants to buy it.

Now what I don’t get is…what comes first? How can you buy the company with the equity tranche from fund and debt tranche from HYB/ loans, when you don’t own the company yet and can’t load it with that debt?

current leverage ratios in the US and Europe?

all_in's picture
 
Points)
 on 4/22/12 at 8:15am

Hey,

what are current leverage ratios for LBOs in the US and Europe. Where do you see them by the end of 2012?

does anyone have a report for Q1 2012?

Thanks in advance!

Beginner LBO Modeling questions

guest4567's picture
EN
(Baboon, 156
 
Points)
 on 4/10/12 at 8:59pm

I'm trying to create an LBO for a case.

1. This might be a very stupid question, but why does a DCF model add back depreciation, but the LBO model does not in the calculation of free cash flow? (Would it be wrong to add depreciation in an LBO?)

2. What are typical IRRs? I'm getting 19% but I added depreciation into the calculation of FCF

3. What are typical financial buyer acquisition control premiums? I assumed 10% if there even is one...

4. I don't know if this is some standard, but from what I can tell blue=hard coded and black=not hard coded.. what is red?

5. What is the usual % paydown (of debt) by year 5 (exit year)? I am getting 100% by year 6, but the model goes until year 10.

Thanks!

-Learning Student

Burger King to Return to Public Markets

inews's picture
 
Points)
 on 4/4/12 at 7:41am

Here’s an interesting one.

Just 18 months after being taken private in a leveraged buyout, Burger King Worldwide Holdings, one of the world’s largest fast-food chains, plans to list its shares on the New York Stock Exchange through a merger with Justice Holdings, an investment company based in London.

Burger King…. will receive about $1.4 billion in cash and continue to own about 71 percent of the company.

Questions:
1. Yet another cash deal… do you think these will become more common then stock/cash deals?
2. Why are they doing this? Is some of this just for more marketing so people buy their products?

Here’s the article: http://dealbook.nytimes.com/2012/04/03/burger-king...

Burger King to go public........again

DonVon's picture
IB
(King Kong, 1,914
 
Points)
 on 4/3/12 at 8:41pm
burgerking.png

That's right ladies and gentlemen, only a few weeks after Wendy's surpassed BK at second-in-command behind McDonald's, BK retaliates by now going public for a second time.

Burger King is going public. Again.

Just 18 months after being taken private in a leveraged buyout, Burger King Worldwide Holdings, the world’s second largest fast-food chain, plans to list its shares on the New York Stock Exchange through a merger with Justice Holdings Limited, a London-based investment company.

We've discussed BK's shortcomings in terms of marketing and product, and the degree to which Wendy's is superior has been covered ad nauseam by WSO. This looks like a fail in the making, but maybe BK's second public appearance could give it the spark it needs to get back on its feet.

M&A / LBO models from scratch

kelin887's picture
 
Points)
 on 3/24/12 at 8:59pm

Hello everyone,

I have been working for almost a year now in IB. Several of my peers are interviewing for PE/HF/VC etc. I am not. Frankly, my modeling skills are nowhere near where they would need to be for me to enter this process. We use a standard model for everything. It is very complicated and I kind of just plug numbers in and see what comes out. I havent really learned anything.

I would like to be able to build my models from scratch the way several boutiques do. Can someone please send me any blank M&A models and LBO models that have been built from scratch? I would like to follow them and try to build my own models from scratch. This is really just for my own learning. I'm well behind where I should be so any help is truly appreciated.

Thanks guys.

Short-Form LBO Modeling?

HarvardOrBust's picture
PE
 
Points)
 on 3/20/12 at 1:28am

Does anyone know what the best way would be to do a short-form LBO model? This is without full-blown balance sheet or cash flow statements. Thanks.

Help!! LBO of a leasing company; include interest on capital leases in pre-financing fcf?

londonmontreal's picture
(Chimp, 15
 
Points)
 on 2/29/12 at 8:43am

Peeps - desperately looking for some quick guidance on doing an LBO model for a leasing company (they buy ships via capital leases then lease them out to travel companies).

Do I include the interest they pay on the capital leases in the FCF before (or after??). I.e. FCF will be net of the interest payments on the capital leases and this resulting FCF will form the basis of the FCF used to calculate debt capacity/purchase price for an LBO valuation.

Any thoughts?

Help!! LBO of a leasing company; include interest on capital leases in pre-financing fcf?

londonmontreal's picture
(Chimp, 15
 
Points)
 on 2/29/12 at 8:41am

Peeps - desperately looking for some quick guidance on doing an LBO model for a leasing company (they buy ships via capital leases then lease them out to travel companies).

Do I include the interest they pay on the capital leases in the FCF before (or after??). I.e. FCF will be net of the interest payments on the capital leases and this resulting FCF will form the basis of the FCF used to calculate debt capacity/purchase price for an LBO valuation.

Any thoughts?

A few modeling questions for upcoming "interview"

Ecalw001's picture
 
Points)
 on 2/18/12 at 10:13am

I spoke with an IB professional last night that told me I have one week to freshen up my knowledge on IB things. At the end of the week I have to call him and he is going to quiz me before putting me through to some recruiters.

So I have a few questions I was hoping some of the monkeys here can help me with. I purchased and reviewed the behavioral guide from WSO a few months back. So I am mainly focusing on the technical area.

I have been reviewing definitions and the basic concepts to understand DCF, LBO, EBITDA, and waterfall modeling.

How in depth should my knowledge go on those subjects?

How to retain management after LBO

sadboy's picture
IB
 
Points)
 on 2/16/12 at 12:17am

After an LBO, what incentive do management have to remain with the company?
Are shares re-issued giving greater ownership?
Sorry for the noob question, my background is more equity raises