Rebuilding LBO Models
I've been able to gather a decent amount of old models from work, some of which I have worked on and some I haven't. My question is, when you guys were summer analysts or new hires and you were breaking apart old models and building them again, what approach did you take? Did you print out the model and then try to rebuild it? Go side-by-side and duplicate the model tab by tab? Or just study it and then try to build it from scratch? What, in your experience, would be the most effective way to go about doing this?
Depending on your level of experience and familiarity with the financial statements I would reco that you build side by side beginning with the historicals, building your assumptions tab, configuring your toggles and arrange the appropriate cases, then i would generally link everything together (and build in your debt tab) and project out 5 years on an annual basis then build the IRR/investor return tab and sensitivity tables
side by side allows you to reference links so you can see how everything ties together should you get lost
Before PE interviews, I tried to create a LBO model from scratch in Excel, by myself, in under 30 minutes. I kept practicing this until I could do it pretty easily.
If you're just starting out, you should go over existing models first, and try to build your own by following what the other person has done while looking at it.
Keep in mind that for IB/PE interviews, you don't need to know all the details that go into a "real" model - focus on the variables that make the biggest difference, like purchase/exit multiple, leverage, and revenue growth/margins and make sure you understand how all of those work.
Once you've gone through a few models that others have built, I would try to build your own from scratch in Excel, simplifying where necessary, until you can do it with ease.
I would also try to review simpler models when you're first starting, because a lot of models tend to be cluttered with things that aren't really necessary for your understanding.
FYI, to anyone who is interested, here is an example of a very simple LBO model that could be built pretty quick.
http://www.kellogg.northwestern.edu/student/club/pevc/documents/2008_Bo…
I've never had to build an LBO model in 30 minutes for a PE interview before, so I'm not sure if this is enough detail. I'll let more qualified individuals comment on that.
Build from scratch and only check precedent if you absolutely must. Only way to learn.
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