Hi all,
I'm a second year monkey at a MM boutiq-ish co. We do the usual modelling i.e., DCF's LBO's etc., but recently we (so me) have been asked to review the seller's model / tailor it for the process etc.
I've seen this part of the sell-side mandate being mentioned in the scope of work on other pitches / timetables, but we've never really done it before here. Is this what the process should look like from a technical perspective?
1) Company provides their own internal business plan model - terrible to use, no best practice assumptions, messy as fuck 2) We clean it up - i.e., rearrange the tabs like a proper model (Assumptions, statements, output tables, inputs) 3) We run a valuation on the business plan to see what a bidder might offer based on the existing assumptions and go back to co/ shareholders and suggest some changes/ improvements? - This is what I'm most confused about (and it ties back to the business model review sometimes offered). Obviously a bank is in no position to make operational assumption suggestions so is this more along thecome lines of "couldn't we put 6% price appreciation on product x instead of 5.5%" or do we just push mgmt to juice the numbers somehow? 4) Revised business plan is agreed upon, we plug it into our model, update the valuation and share it with shareholders 5) We generate some spiffy output tables from our model to put into the IM/ MP
Also - is at any point the model actually shared with investors? I've seen this done on infra and FIG deals, but never on any other ones I've been on.
Also 2 - What happens when the company doesn't have a model, just a very basic business plan? Do you then work with mgmt to make it granular and build out a functional model? I've heard about friends building it for them, going down into individual SKU price points and raw material splits, but who actually vouches for the numbers in the end?
Is this about right? Some of this may sound basic, but I'd really like to get the hang of this process without actually going overboard. I'd be grateful for thoughts from fellow monkeys how this looks at your shops.
Thanks!
Bumpity bump?
In my experience, whenever a management team sends us a model - if it isn't made by an ex-banker, which is a different story - we would just glean the assumptions from it and put those into our own template. Typically the models that middle market management teams put together look like they were creating by a middle schooler in typing class, so I'd put it into your internal format right away.
You won't share the valuation or LBO with investors but you will share the outputs of your operating model, so IS, BS and CF projections. At the end of the day, you don't want to own the projection set, so make sure management is driving or at least providing significant input on your model assumptions/projections.
If the company has nothing, you'll just have to build the projection set from scratch. See how much relevant data the company actually has on hand to determine how granular you can be. If you can get economics on each individual product line that's great, but you may end up just having to project growth/margins on the business unit or company-wide level. Like I said, just make sure management is giving you input on every number because they should be defending those projections as the process moves forward, not you. Overall your approach sounds pretty efficient though, good luck!
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