Current MM LBO Debt Mix/Rates/Terms
At the moment I work in a non banking finance function. After a lot of hustle I finally secured myself an interview at a middle market firm. One part of the interview is a modeling test in which they want me to build an LBO from scratch. I have been practicing like crazy so while I understand the mechanics of building the model, I don't really know much about the current debt markets. To make matters worse, the prompt doesn't really offer much detail on how the transaction should be financed.
I did some searches and everything I turned up either seems old or applicable to larger deals. I don't want to give too much detail but the company is private, has revenues of $300-500M in the consumer sector. Can someone tell me for a company of this nature, what types of debt would be available, what would be current market interest rates and any guidance on the composite mix of debt and current allowable leverage levels? Any other special considerations I should take into mind?
Not in that space atm so don't know what current terms look like, but I used to use Pitchbook's MM PE data for books when I was in LMM M&A https://pitchbook.com/news/reports.
For the actual structure, it may be tough but see if you can find some comparable deals to copy. If you end up having no reference point, I think it would make the most sense to just go with a Senior Term facility and a Sub Note for the debt portion. This shows you understand two major silos of debt financing used for a buyout while keeping yourself from overcomplicating things. For the purposes of this exercise, that isn't even far off from industry practice. I've seen a Q&D model from a pretty solid MM buyout shop that lumped everything into a "Funded Debt" facility for their initial analysis.
I think the biggest part is to just make sure things are flexible. Build your model in a way that when you're finished you can ask for input on the financing assumptions and instantly update your model with that new information.
Thanks trader_timmy, the pitchbook stuff was helpful. Anyone else currently in the space have anything to add?
I also don't have much consumer experience.but there are several parts that would be helpful to understand:
1) Type of business. Is it a staple product, discretionary, or luxury good? The former will probably allow for more leverage, particularly at this stage of the business cycle.
2) EBITDA and/or Margin
3) Recent performance - has it been growing quickly, steadily and slower, declining?
I'd go with ~40% equity without having more information, but the right deal could get enough to push that down to 30%. 5.5-6x debt seems within the realm of reason.
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