PE Case Study with Only CIM

Based on the most helpful WSO content, here are some steps and tips to approach an LBO with only a CIM, especially when you lack specific information about the debt structure:

1. Analyze the CIM Thoroughly:

   • Business Description & MD&A: Start by reading the business description and Management Discussion and Analysis (MD&A) to understand the company's operations, key value drivers, and market positioning.
   • Financials: Sketch out the last three years of high-level financials and form expectations about the near and medium-term performance, especially if you are familiar with the industry or business model.

2. Create Assumptions for Debt Structure:

   • Benchmarking: Use information from similar LBOs to benchmark the target company. Look at leverage, OID, credit ratings, interest rates (e.g., L+xxx on term loans or x.xx% coupon on bonds), and price talk from comparable transactions.
   • Public Comparables: Create a list of public comparable companies (5-10) and spread each company's capital structure. Calculate their leverage ratio based on Adjusted EBITDA from the latest filings or quarterly press releases.

3. Modeling the Capital Structure:

   • Leverage Ratios: Calculate cumulative leverage, FCF multiples, and interest coverage at each level of the capital stack.
   • Debt Tranches: Make educated guesses on the types of debt tranches (e.g., revolvers, term loans, bonds) and their respective pricing based on your benchmarking data.
   • Interest Rates: Determine reasonable interest rates for each tranche of debt, again using your comparables as a guide.

4. Building the LBO Model:

   • Debt Schedule: Even without specific debt structure information, you can create a debt schedule by making assumptions based on industry standards and comparable transactions.
   • Sensitivity Analysis: Build out sensitivities to test different scenarios and ensure your model is robust.

5. Resources and Practice:

   • PE Interview Prep Course: Consider using resources like the WSO Private Equity Interview Prep Guide, which includes a comprehensive set of questions and case studies to help you practice.
   • Networking: Reach out to friends or colleagues in PE for their LBO modeling tests, which can provide additional practice and insights.

By following these steps, you can create a well-rounded LBO model even with limited information from the CIM. Remember, the key is to back up your assumptions with data from comparable transactions and industry standards.

Sources: Private Equity: How to Analyze a CIM Effectively?, Private Credit Resources and Prep, Creating own LBO assumptions, Guide to Lateraling in 2021, Guide to Lateraling in 2021