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I don't work in secondaries, but have seen case studies. It's very similar to traditional LBO, with following differences:

  • Transaction Structure: Roll existing debt (they give u the balance) - they should give u interest rate, make ur own assumptions on amort, and sweep paydown
  • Carry: You need to get to net returns. So build in fees and carry (do whatever assumptions...2% fees, 20% carry above 8% preferred return, 100% catch-up)
  • Metrics: You can value the business on a multiples basis like a regular LBO case, but also build down to implied equity value, and compare to the GP's NAV (good sanity check). For instance, if your operating model has conservative assumptions, you might end up implying a big discount to NAV for the sponsor

Otherwise, everything else in the model should be broadly the same. So basically, simpler debt paydown (unless case says it's refinanced), more complicated equity waterfall. Write-up should also have the same elements as a regular case (investment merits, risks, create a base case), with the added element on some view of the GP -- e.g., might be a diligence area to see their track record in the value creation strategy

 

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