Hi all,
Dumb potential Analyst hoping to get some insight: Im applying for a job with a boutique sell-side M&A firm and was lucky enough to make it to the case study round. However, I’m worried I’m not correctly understanding the deliverables requested in the case study materials:
- Create a 3 statement operating model of a publicly traded company
- Use the 3 statement operating model to create a DCF analysis
Questions:
1. Wouldn’t the valuation methodology of a public company be totally different than a private company?
2. Do sell-side M&A banks typically make 3 statement operating models? I thought they wouldn’t because most deals are done on a cash-free/debt-free basis, so it doesn’t make sense to model debt or equity.
Thanks for any help, just trying not to look totally stupid!
Based on the most helpful WSO content:
Valuation Methodology Differences:
3-Statement Operating Models in Sell-Side M&A:
For more detailed insights, you can refer to the following threads: - https://www.wallstreetoasis.com/forum/investment-banking/structuring-an…</a">Structuring and Flow in an M&A Model - https://www.wallstreetoasis.com/forum/investment-banking/help-with-3-st…</a">Help with 3-Statement Model Test
These resources will provide you with a deeper understanding of the modeling techniques and their applications in M&A processes.
Sources: Structuring and Flow in an M&A Model, Seeking advice on Corporate Banking modeling, Help with 3-Statement Model Test, How to pick the right bank to run M&A sale process?, Structuring and Flow in an M&A Model
From my experience it is very rare to do a 3 statement operating model. Agree that usually your operating models will only project down to EBITDA. The firm you are interviewing at is probably asking you to do it so they can assess your technical acumen. I would be surprised if you had to build 3 statement models for all of your clients if you were to get the job. In terms of valuation between a private and public, there shouldn’t be a meaningful difference. Ultimately the DCF mechanics are identical but the underlying FCF may be slightly different because you will have potential incremental costs from being a public company and the potential of treating stock-based compensation. Regardless these additional items to consider should not change the mechanics of how you would value a business with a DCF.
Very rarely
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