Aug 31, 2024

Take Private LBO Case Study

IB
Analyst 2 in IB - Cov Orangutan
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Have an upcoming case study where I'll be given a public company, and need to put together a three-statement LBO and two-page investment memo.

Is there anything I should be doing differently in terms of preparation and how to handle this? I have been doing all the usual LBO modelling prep (WSO, other online templates, etc.), but want to make sure I'm not missing anything. Curious if anyone has done one of these or has some additional insight into what to expect and prepare for. Thanks!

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chihayafull - Certified Professional
Almost Human PE
2y
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  • Sounds really stupid, but refresh yourself on comps for the S+U. So like all share counts/options, gross debt figures, etc. remember that you’re gonna have to actually refinance the debt as a Use (and not just put it as “Purchase Price” as it’s not cash/debt free. 
  • Small detail, but higher fees to account for legal and the fact that you’re on the hook for sell side fees.  This is a broader thing about take privates, but you inherit the company as-is, including rolling the entire balance sheet
  • For the Memo, you should have some “take-private rationale.” This isn’t a banked process where the seller is tryna cash out, there needs to be a reason why the company would do better as a private company, and why now. For example, say there’s a growing segment that needs time and investment to scale into a new market that doesn’t work with quarterly investor guidance. Or perhaps they seem really bloated versus peers (low margins in similar industry?). Stock has taken a nose dive, worth looking into? Any other reason why the stock is mispriced? Mid-market company that nobody gives af about?
  • Relates to above, but what can you underwrite that won’t exist in the public markets? A very easy (and imo stupid) example is a couple million of public company cost savings (no more compliance bs, treasury, etc). You also need to make sure you’re valuing it at a sufficient premium to what it’s trading at. For example, if you have a 10% premium in your most optimistic scenario, should be realistic that that’s not gonna cut it. 
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Authored by: Certified Private Equity Professional - 2nd Year AssociateCertified Private Equity Pro
 
chihayafull - Certified Professional
Almost Human PE
1y

Regular cash-free debt-free txn:

  • Sources:
    • Sponsor equity investment (plug)
    • Debt (based on leverage on EBITDA)
  • Uses
    • Purchase Price (EV)
    • Fees (txn and financing fees)

Take-private:

  • Sources
    • Sponsor equity investment (plug)
    • Debt (based on leverage on EBITDA)
  • Uses
    • Share purchase (FDSO incl. options, RSUs, other mgt incentives)
    • Existing debt Repayment (incl. any other nuances, like prepayment fees, any other CoC that needs to be paid)
    • Fees, which are larger (sell-side fees, higher legal fees, debt financing)
      • Incl. in fees, any other obligations that are going to need to be paid. For example, D&O insurance, severance, etc)

The difference in the cash-free debt-free, you essentially just pay the EV and let the selling party deal with their own debt repayment, fees, and other shit. In a take-private, you have to actually find and confirm everything you need to pay for.

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Authored by: Certified Private Equity Professional - 2nd Year AssociateCertified Private Equity Pro
1 reply
 
IB
Analyst 1 in IB - Cov
King Kong
1y

this guy is a loser who sells case studies. look at all his comments lol. ignore the loser. 

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IB
Analyst 2 in IB-M&A
Neanderthal
1y

Quia neque sed deleniti eligendi officiis velit suscipit. Quis et blanditiis error assumenda voluptas iste.

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