Hey guys - It's been a while since I've posted here, but I've just started working at a top MM boutique and I've begun practicing for buyside opportunities. While I am primarily interest in working at a L/S HF, I wanted to get to get tips on how to build a quick lbo model. I've built some in the past, but it took a really long time to build. Any tips on building a quick LBO for the modeling test? Especially have a tough time on building a debt schedule with circularity.
Thanks guys.
Do you literally mean "how to model quickly"? The answer to that is practice.
If you're asking "what's actually essential to project out if you have a limited timeframe" I think the easiest way to do it is to get your balance sheet and adjust it for proforma (don't project it out), then do your income statement (projected out over the period) but instead of doing a full cash flow just get down to cash available for debt repayment (which would look something like: Net income - NWC - Capex + any PIK + D&A).
Then you do your debt schedule, which takes a little while but should improve as you practice, and then you do the returns calculations. For the debt it's probably important to remember to go in order, and to properly set up your min functions so they're pulling the correct dollar numbers, and you don't use cash twice or something. The easiest way to do this is with a full cash flow sweep, so you use all your cash excess of some minimum value to pay down debt.
Is there something specific you're struggling with? Might be easier to help that way.
Thanks for the reply.
I was looking for general tips on building a bare minimum lbo model i.e. certain steps to follow and the bare minimum acceptable schedules. Your tips are great. I definitely need to practice modeling more so, it was a bit overwhelming building it the first few times.
I think what i listed is as low as you can go within reason, unless you want to do it more back-of-the-envelope style.
If you wanted to go truly minimalist you could simply create the excel equivalent of a paper LBO.
Here's a nice worked example that is probably telling you how to suck eggs given your current employment (absolutely not my intention), but for the avoidance of doubt....
http://www.streetofwalls.com/finance-training-courses/private-equity-tr…
Hope this is of help.
BHB.
Recommend the SOW site for basic LBO mechanics, but only practicing will get you there faster.
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