There's a company attempting to roll-up an industry over a period of years funded by internal cash flows and by taking on debt.
Whats the best way to model this?
| +98 | New Article: Dramatic Slide as UBS #22 (US) & New Leadership Desperately Needed | 20 | 9m |
| +77 | Americas M&A League Table Q2 Updated | 30 | 21m |
| +72 | Wealthy Parents / Jaded | 24 | 10m |
| +55 | How are hours rn for SA (interns) | 30 | 4h |
| +46 | Venezuela Debt Restructuring - LAZ vs CVP | 22 | 11h |
| +42 | A COMPLETE GUIDE TO SUMMER INTERNSHIP RECRUITING | 10 | 24m |
| +37 | Boutique firm wants access to my LinkedIn? | 31 | 1h |
| +28 | Investment Banking in Mexico | 8 | 4h |
| +26 | MM bottom bucket bonus | 9 | 3d |
| +24 | UBS GIG, LevFin, FSG Interns working Sundays and 85 hour weeks their first week? | 12 | 1d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Rolling up the whole industry?
Just use regular Acc./Dil. model for the acquisitions
LBO model using acquisitions. Pretty standard.
Not trying to be a douche, but I think I'm missing something b/c I said Acc./Dil. - would you mind explaining at a high level why LBO vs. Acc./Dil.?
Private equity firms usually engage in rollups, not strategic buyers. I think that peinvestor is making this assumption.
PE Perspective: You should start with an LBO, since that is how you are acquiring the initial platform company.
Then, in your going-forward projections, you have the P&L and CFs of the platform. For each target acquisition, modify the cash flows for the amount that is internally financed and add in the interest expense for any new debt that is taken on. Then add the financials from the target beginning from the date where you expect the transaction to close. Do that for each potential acquisition.
Then, you should have consolidated financial statements that include the platform and all acquired targets. Assume an exit multiple off the consolidated EBITDA and calc your return.
Strategic Perspective (I'm taking a crack at this based on intuition, but haven't had to do a rollup for a strategic. This is how I would approach this): You have the acquirer's standalone financials, cash flows, and balance sheet projected. If you are financing with balance sheet cash and raising straight debt, then shares outstanding shouldn't change. Thus, many of the points I mentioned above will apply here (pro forma-ing the financials for each target acquisition and affected cash flows and net debt appropriately). You'll end up with a consolidated net income number, and then calc EPS based on the shares outstanding you assumed before.
Partially. Generally rolling up is synonymous PE. But, we will run an LBO even as we advise strategic clients on the buy side to assess the value of leveraged returns. If a strategic is planning to buy and hold and use debt to fund a significant portion of the acquisition, we want to see what the returns look like for a given transaction value (and exit value) or inversely what valuation range to target given return expectations.
BepBep, you are right that A/D is one way to do it. If the acquisition involves debt though, we will likely run both. However, the LBO has built in acquisitions that make roll-ups easier to analyze. But, what happens if it is funded with 100% debt, as CaliBanker alluded to? A/D is rather obvious at that point, though the degree will vary. But, your client wants to see how quickly they can repay debt (or make another acquisition) and the returns the acquisition(s) will provide.
Eum rerum voluptas iusto. Iure hic commodi et corrupti ea nulla. Fugiat tempore delectus quo corrupti. Voluptas fugit aut voluptates laudantium. Quod praesentium ut voluptatibus at. Ut corporis non porro consequuntur quis.
Voluptatum veritatis ab sed ullam quis nam. Corrupti repudiandae voluptatem et ea voluptatem. Occaecati mollitia voluptatem ex consectetur quaerat corrupti illo. Aut quos quae ut ea. Aspernatur ipsam a reprehenderit ipsam voluptas architecto.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...