For the take-home case studies given, how detailed are the models expected to be? For example, I've prepared more of a shortform screener that has all the usual features of a full one, including a mini depreciation & amortization sched. but I fear that it maybe too simple for a take-home.
From the projections standpoint, I only do it annualized ie there is no stub on financials or Cash Flow for mid-year closing etc. From the U&S point of view, I've got a Revolver, TL, Mezz and Equity... The revolver is an auto drawdown to cover cash shortfalls while the TL is evenly amortized over a predetermined plug period and has an voluntary cash sweep toggle if you want to use it... The mezz has a simple PIK formula and cash interest...
Again Ive got a simple B.Sheet and Income statement driven by hairline assumptions (% sales growth, % of Sales for COGS etc. while my depreciation and amortization are done via a simple D&A schedule)...
My IRR / Ownership uses a simple management / sponsor contribution toggle and mgmt gets a plugged % option pool for the purposes of modeling each's IRR and contribution to achieve targeted returns...
The model is built more along the lines of a simple deal screener than a full lbo model, it's actually quite versatile and well formated for what it is, it even has a DCF tab but my worry is that this maybe too simple for a take-home and I may need to add a TLB, Preferred Equity, maybe a capex line etc. as well as stub for mid-year cashflows etc.
Can anyone opine on their experiences building an take-home one?
btw. this one is built from scratch as I don't want anyone thinking I got it off some website...
Case study, for what? Just make sure you have a circular model. You should be solving for debt that flows through the PnL as interest. Cost/Benefits of leverage. There should be a model tab. All other tabs should just be "reporting tabs" that state results.
Careful with homemade models if you do not do them often. Simple is better. Very rare to have a error free model from scratch.
for LBO case-studies given during recut...
I've been building LBO models from scratch for the last two and a half years, that's not the issue, the question is whether on not it's too simple as a screener / shortform version or I'm expected to have a full blown LBO model...
Thanks for the modeling 101 etiquette and outputing results but this isnt a tabbed model, for simplicity purposes it's done on one tab for easy referance and linkage and also due to its simplicity... it only uses up 400 rows, so it's nothing too crazy, again just a screener... btw, there is a summary section even in this one for the purposes of pasting into the word case-study...
Were you given any guidance regarding level of detail? A 1 tab take home model seems a bit simplistic (although based on your description above youve covered all of the reqs data points) and may appear unorganized. In the past, Ive at least broken out an assumptions tab, fin tab, and a valuation/IRR tab along with seperate debt schedules.
I say one tab not because it lacks the necessary schedules, I just placed all the required items vertically on the tab, underneath each other, with each sperated on page view and with it's proper heading... I did that rather than break each up into multiple tabs. It makes it easier to work with, screen and because I didnt do it full blown, the detail levels arent extensive, therefore they'd look silly with 20 rows per tab...
It is extremely clean and simple to use, I've had people test it out as well as back test it on deals and it works fine... The headings and the layout make it really easy to read / use, my fear is that it may lack too much detail with respect to a TLB, the stubs for deals that close mid year, actual term loan amortization assumptions etc. and dont know whether they expect something more detailed than a short form version or what other people have gone and done in the past for these...
Nonetheless, it lacks all those features but it's pretty accurate as a tool...
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Sounds like a step up from a screener. Our full LBO here at a BB models all off of 1 tab. We're debt oriented so we have a very detailed debt break out. Do you have multiple debt breakouts? Feel free to send it over and I'll take a look. Just PM me.
Your info says first year associate. Are you applying to a BB after B-school or coming out of BB going to PE shop...?
Neither, buyside leveraged lending for LBOs with emphasis on sub debt... Technically I fall under 2nd year associate at this point as the title says, but I'd be a second year analyst if i were in IBD... so it would be from there to PE, that's why the LBO modelling is easy but I dont want to go crazy building a model with tabs when it isnt necessary in the future...
The debt breakdown is in 3 tranches, a revolver which is made to autodraw for FCF shortfalls (does not have a commitment size to stop it from overdrawing, either way a signal that the deals CF is no good anywat), the Term Loan is made to amortize over a plugged in period, ie if its $100m and 5 yr amortization, it would be $20m / year ( alittle rough I know but again, it's a shortform type model) but it also has a toggle for full cash sweep if chosen and lastly there is a mezzanine tranche that has cash & pik rates over the 5 year period... this is also where I;m worried it maybe too debt simple for a case study... btw I dont bother computing a cash interest balance since I assume full cash sweeps most of the time anyway... It does not project over 5 years either so I'm not sure if that's an issue, but it makes the model simpler as it has no forced pay downs and wacky cash outflows and shortfalls after the senior debt matures...
jmcfadden, those were along the same lines I was thinking except I really didnt want to seem too lazy so I built a mini D&A, mini CF statement (working up from NI as a full one would do), mini return analysis with options / mgmt split, and basic plug-in growth assumptions (balance sheet is driven off dso, dpo, inventory turns etc. and income statement of the usual growth % and % of sales assumptions)... I call them mini because they dont go past 5 years and they lack other more complex toggle / paydown / conditional functions...
Would they view this as oversimplified even if they use it as a screener? From the really general info they give you, I don't see how they'd expect much more, but then again, I'm jst guessing and it may need mid-year cashflow stubs and such...
A lot of firms use a one-page mini-model to quickly assess opportunities. There's no balance sheet -- just a short-form cash flow statement (i.e. EBITDA, capex, delta NWC, cash interest, cash taxes built up off of simple assumptions (i.e. NWC as a fixed % of revenue). Then there's a simple waterfall with 3-4 tranches of debt. Usually there are also built-in sensitivities around margin/growth, entry/exit multiple, and leverage/exit multiple.
Given that firms use these simple models for their day to day operations, I don't see why you would need anything more complicated. And generally it prints (50% zoom) on one side of a typical piece of paper.
I really don't think they care about the complexity of the model--as long as its correct. You will be much more impressive if you take the output of the model and use it to develop a thoughtful view of the business. There are many 'analysts' out there who can build a great model--but less who can actually think about what makes for a good investment. I think the second is much more important.
Hi MezzKet,
Was wondering if you would mind sending me your model via email? Last time I modeled an LBO was more than I year ago, I would be curious to see what yours looks like..
TLB? Term Loan B?
yes, a TLb = Term Loan B, the institutional loan sold to investors...
What's the main difference between term loan A and B? Is it basically the repayment schedule? I've never really caught the difference.
TLA gets repaid progressively (like in A-mortization) TLB gets repaid in one shot (like in B-ullet)
ehhh, these days A's get a 10-15% yearly amort. while B's are at like 1-2%/year... Bullet's arent as common on B's anymore...
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