How to build an LBO from scratch?
I’m prepping for on-cycle and I’m able to do most of things except build a full LBO model from scratch. It just feels like every prompt is different and has its own bells and whistles. I understand the overall mechanics of an LBO but I can’t put it together as a model. Does anybody have an advice on how to do this? Would really appreciate it.
Look - if you're just starting to practice, don't over complicate it.
Reference any IM / 10-K and decide on your entry assumptions (entry valuation, leverage). Start your operating model by building Revenue / GP / EBITDA lines and driving each off using growth / margin. Follow up with your NWC / Capex schedules, and then your FCF profile. Debt schedules with cash sweep next, alongside credit metrics (this is where the slightly trickier formulas come into play).
With the above you can then build your returns analysis (MOIC/IRR).
If you've more info, you can break revenue down into its corresponding drivers, say ASP / vol. CFS/BS inclusions should be easy because you can pull all the line items from what you've already built above. Div. recap, earn-outs, structured returns scenarios can also come later. It's fairly simple once you do it a couple of times - good luck.
I appreciate the comment. I have done LBOs before when it’s pre-filled and I don’t have much of a problem for that. But when I see prompts online or case studies sent from friends I don’t even know where the start. They all seem different from each other and I just blank out on what to do. Any advice?
YouTube. WSO also has a great PE course with paper, basic and full blown LBO modes. I used it for my prep.
MacAbacus is good to walk through the instructions to understand the concepts, but their model is way over the top compared to what you need for interviews.
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