How to Complete LBO for Private Company, No Cash Flow Statement?
Relatively new to LBOs so please bear with me! Started practicing on a case where the only financial information in the CIM was a basic financial forecast (think revenue - operating expenses = EBITDA) and detailed calculations on said revenue, operating expenses, and Adj/EBITDA, no balance sheet or statement of cash flows. Goal is to come up with a recommended acquisition price for the company, sources/uses, and IRR over 5 years. A few questions below:
- I'm lost as to how to build out the model. My understanding was I at least need a statement of cash flows to work out FCF, but I don't have that. Am I thinking about this wrong?
- I'm assuming I have to make a lot of assumptions on entry/exit multiple, debt to take on, etc. b/c literally none of that is given. Normally I'd look at some public comps, but the company in question is a landscaping company, and not sure there are many public comps for that. How else can I make more educated assumptions instead of randomly pulling numbers?
Thanks in advance for any help!
No you don’t need CF or BS to do an LBO model. Can just make up stuff (ideally look at comps) for the cash flow items.
On exit multiple, if there’s really no comps, just use the “DCF-implied” EBITDA multiple assuming some level of perpetuity growth (maybe 5% = GDP growth) and FCF conversion
Same as above--ran into this in my last modeling test
Hi!
I am in no way a pro at this so please correct me if wrong. I would generally approach it something like this, assuming you have an on-site test with no access to comps.
As others have mentioned, you don’t need a historical CFS/BS.
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