Paper LBO for IBD SA
I've been working on doing paper LBOs and starting to get the hang of it.
I'm curious how detailed/complex the ones I'll be given interviews will be. Most of the practice LBOs I've worked on have pretty standard straight-line depreciation, as a flat rate or percent, round numbers (ex: 100M EBITDA growing at 10-20%) etc.
How complex should I be expecting? Any with multiple types of debt? Randomish numbers for debt, tax, interest etc?
Thanks!
Based on the most helpful WSO content, the complexity of paper LBOs in interviews can vary, but here are some insights to guide your expectations:
Initial Complexity: Typically, paper LBOs start off fairly simple. You might be asked to walk through a basic LBO model, which would include calculating entry and exit multiples, setting up a simple debt schedule, and determining the free cash flow available to pay down debt.
Progressive Difficulty: As the interview progresses, the interviewer may increase the complexity of the LBO model. This could involve more detailed questions about the debt schedule, different types of debt instruments, and how changes in the business could affect the model.
Variety of Scenarios: You might encounter LBOs with different scenarios, such as changes in revenue growth rates, EBITDA margins, or capital expenditure requirements. Be prepared to adjust your model accordingly.
Debt Structures: It's possible to be tested on LBOs with multiple types of debt. This means you should understand senior vs. subordinated debt, PIK interest, and possibly the impact of covenants.
Realistic Assumptions: While practice LBOs often use round numbers for simplicity, real interview questions may include more "randomish" numbers to simulate a real-world scenario. You should be comfortable working with these and making reasonable assumptions when necessary.
Qualitative Aspects: Some interviews may also include qualitative aspects, such as investment thesis development or creating a quick slide deck to support your model.
Remember, the key to success in these interviews is practice. The more you work on different LBO scenarios, the more comfortable you'll become with the mechanics and the quicker you'll be able to adapt to curveballs thrown your way during an interview. Keep honing your skills, and you'll be well-prepared for whatever complexity comes your way.
Sources: https://www.wallstreetoasis.com/forum/private-equity/on-cycle-recruiting-2018-what-to-expect?customgpt=1, Q&A: I’ve held Pre-MBA MM LBO, Growth Equity and Venture Capital investment roles for funds with $500M+ AUM to $5B+ AUM, Q&A: 1st year VC analyst (~750M AUM), Ask me anything - MM PE Associate, 1 year in, Guide to Lateraling in 2021
bump
Some might ask standard paper LBOs and some might throw in a weird quirk in there. If you understand how an LBO work you should be fine. Paper LBO by definition is pack of the napkin math levels of complexity.
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