IBD to REPE: How to get myself used to the new (possibly wrong) modeling
I joined an acquisition team of a REPE and previously worked as an associate in IBD. I love my new team, and most of the seniors are pretty easy-going and willing to teach me.
However, when doing corporate-level deals, I noticed that something can be considered totally wrong from the aspect of IBD, particularly when it comes to modeling.
One example is working capital. I see some models include the lease liabilities and non-current liabilities in work capital. I believe this is incorrect based on what I have learned from my previous job and textbooks.
I tried to explain but failed. To avoid being too aggressive, I held back but still felt uncomfortable about this.
I understand that I should focus on learning from others in a new environment than complaining about the errors of others. But this has happened several times, and I just cannot let it go.
Hope that I can get some advice. Thank you.
So, not sure if this is actually related or correct, but could some (if not all) of these modeling conventions be related to accounting recognition/rules (i.e GAAP/IFRS) vs. cash based methods (which can be more common in private transactions vs. public company deals)? I have these sorts of "issues" at my job, where I always have thought in pure "cash flows" type of private valuation world, but alas we must report to IFRS so.... guess what wins....
It is what is it, I guess, and I've been in the weeds of these issues (like lease accounting...... omg), and the auditor sets the terms at the end of the day.
I ask as depending on who your clients were in IB, they may have followed different rules than in private equity dealmaking/valuation/analyses... and that may explain some of it.
Either way.. my advice.... just ASK, don't be the know it all, ask for explanations, and if they seem to not "know" you will get your opportunity to explain. But, don't assume you are "right" necessarily, rules of the road literally change based on structure, etc.
What do you mean when you talk about "lease liabilities" and "non-current liabilities"? I have no idea what you are talking about and likely your co-workers / superiors have no idea what you are talking about.
Real estate is simple, don't make it more complicated than it needs to be. Cash in, Cash out. Cash is king.
He's talking about items on a REIT's balance sheet that must be accounted for in a take-private analysis and asking whether it should be included in NWC.....
If he's working as an acquisitions analyst, he/she is modeling the property level cash flow.
The current balance sheet of the existing owner doesn't matter.
I've underwrote plenty of portfolio level deals and I never care about the balance sheet. I've never seen anyone look at real estate balance sheets outside of accounting groups.
If this guy is working for a company that buys entire real estate companies, that's not really an "acquisitions analyst" that's more private equity space that just happens to buy a real estate company. It's a completely different job from what 90% of this forum does, which is buy/sell/loan on commercial properties.
One of the things you’ll begin to see is that many companies do things “wrong.” For instance, my last company never broke out a tax abatement from the asset level property cash flows. We just valued it all together. This technically is “wrong” as it shows a higher cap rate than market. Normally you would value the building as if it were not on a tax abatement, and than you value the tax abatement, and add the two together. However, you can actually get to the same place (in terms of value). The key is that you do the valuation and modeling the same way each time so that you spot the deal that is actually a good deal. Valuation is more art than science.
We’re you an a2a or mba associate?
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