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Hey neil91, the following topics might be helpful:
Fingers crossed that one of those helps you.
Modifying GP assumptions. Sometimes if we feel a certain part isn't detailed enough we would break the model and insert our own assumptions. For example, if management only takes into account growth capex, we would make an assessment of maintenance capex and factor that into the model.
The bulk of the analysis focuses on stress testing the assumptions. How silly can your assumptions be that still gets you to your desired returns. For example, if the company has been well over industry growth rates. If you just assumed it grew at market rates and be able to get to your returns, then it is an easy sell at the IC. I had one case where because of the structuring and low entry multiples, we could assume the company growth declines and we could hit our targeted returns, another very easy sell.
Yeah, my team usually takes the base GP model and then we’ll diligence all the inputs and assumptions and tweak them as needed. Lots of building in different cases - GP case vs our baseline, upside, and downside cases.
You’re absolutely right we will break the model and insert our own more complex builds for things as needed. Always layer on LP returns on top of course.
Thanks guys. How do you then monitor your co-invest positions? Do you get quarterly reports from the portfolio companies? Also, if a platform company makes an add-on acquisition, will you then update your model?
At my fund we get quarterly reports from the GP.
And yes, if there is an add-on acquisition, we will get a revised financial model from the GP and re-perform our analysis. But our analysis certainly wouldn't be as detailed as when we first invested in the company.
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