Been using an LBO template...

I've been using a templated model for the longest time. In an effort to make myself viable for PE recruiting, as well as other model-intensive finance jobs, I have been trying to build 2 models for each deal (one from scratch for me; one templated, because my directors dont understand any other model variations).

I'm really slow at building the LBO from scratch. I believe this is due to my poor accounting background - but I am getting significantly faster with each new company I model out.

Realistically, how long should it take me to: create the historical statements & inputs, flip the equity research projections, build the post-transaction balance sheet, link up the projected statements, and create the necessary schedules (Capex, DnA, Amort./Intan., asset sales, and cash vs. gaap taxes)? Im trying to set some goal for myself.

In addition, what portions of your models do you you guys consolidate or skip making schedules for? I believe I could speed up considerably if I consolidated the balance sheet from the 10-k's format, to something like: Cash, Net current assets, net PP&E, Total Other Assets, Net current liabilities, Debt, and Total Other Liabilities. I have not attempted to build the model this way, because I feel like I would get confused by the accounting flows. Same question for the CFS.

Finally, can any of you share a quarterly or monthly model template? Im trying to understand the most efficient way to build a non-annual model, but cannot think of a way without wasting tons of time re-typing projected calculations for each year.

Thanks for your help. Everyone in my group uses templates, so I cant really ask them :(

 

It probably depends on where you're starting from, familiarity with the business model, the level of detail that the model needs to provide you with, and also the level of diligence that you've completed.

That being said, I've seen a high-level LBO w/ very basic assumptions go from CIM to LBO in under 2 hrs, not sure if that's fast or not by IBD standards, but I was impressed.

'Before you enter... be willing to pay the price'
 

BepBep, that seems within reach for me. I feel as though I am halving the amount of time it takes me to build a model each time I go through it. I just dont know at what point my marginal returns will start to decrease drastically.

Array
 

You could realistically make a barebones LBO model from scratch in under 30 minutes. All you need is an income statement from your LTM period to your investment horizon, a cash flow statement for the projected period and cash/debt balances. Assuming a straightforward business, as long as you know/assume the entry/exit multiples, know the EBITDA and have cash/debt to back out the implied equity value, you can do a very quick LBO analysis.

For the purposes of PE interviews, you should be able to build a fully functional 3 statement LBO model in about 1.5 hours or less. The math should be second nature as you'll likely get paper/mental LBO problems to work through. In the event that you are given a blank excel spreadsheet or a template, they will give you anywhere from ~2-5 hours to build the model and possibly write up a discussion of the scenario/investment memorandum. The worst I've seen/heard of is 2 hours for a model from scratch with a list of questions to answer on the hypothetical investment.

Just remember to keep things simple. No one is giving you bonus points for modeling in intangible asset allocation at purchase. Also be consistent with the 'format' you use when modeling from scratch. It goes a long way towards shaving time off. Modeling tests in interviews are more about vetting out unqualified candidates than anything else.

 
Best Response

Been wondering about this too - I'd never really done LBO before since I'm from restructuring, but I ran the WSP LBO prep (which was actually pretty fun) building out each schedule by hand. I think that's as advanced a model as you'd ever need - does all the things for tax vs. book/deferred tax assets, NOLs, etc. and toggling between standalone model/LBO/lev recap.

But there's no way I'd do all that in a modeling test - it would take waaaaaaay too long.

Does anyone have a sample of a good "1.5 hours from nothing" model? I suppose at the bare minimum you need:

3 statements Debt schedule/paydown Acquisition details/balance sheet adjustments PP&E/Depreciation Returns/cash flows to debt/mezz/sponsors

Sorry I'm pretty rookie to LBOs...

if you like it then you shoulda put a banana on it
 

Id be interested in seeing how to structure a simple "LBO from nothing" as well. I'm having trouble with the IRR section as well because I'm in a credit-focused group. Trying to figure out the quickest/simplest way to build the IRRs.

Array
 

Cries - for the IRRs you need to outlay the cash flows to each party and sum it to a single stream, then run the xirr function using the dates above the cash flows. xirr is a little better than regular irr because you can do irregular cash flows (i.e. at random dates rather than fixed periods).

Basically you lay out each tranch of debt, they have a negative cash flow when they lend, and they get interest payments in the meantime and principal back at the end. Mezz might get an equity kicker as well.

For sponsors and management, you put in their acquisition of the equity as a cash outflow and the inflow comes in the form of equity on exit - that's why you need the debt schedule so you can figure out how much that stake is worth.

If you pm me I can send you a sample 'fancy' LBO model I've built - maybe we can join heads on it and come up with a good 'barebones' model.

if you like it then you shoulda put a banana on it
 

I'd be happy to share a good template with you guys if it weren't for the fact that I'd have HR all over me for sending a file externally. For the purposes of an interview, remember that IRRs are essentially a CAGR calc - also useful to remember certain 'landmark' IRRs (e.g. for 5 year horizons: 2.0x MOIC=15% IRR, 2.5x MOIC=20% IRR, 3.0x MOIC=25% IRR). Those are ballpark figures obviously, but very useful for back of the envelope LBO math.

Also, in terms of general modeling practices, I'd highly recommend making a practice of building in functionality for multiple operating and financing cases (use the choose function and name your toggle cells).

 
Soc:
I'd be happy to share a good template with you guys if it weren't for the fact that I'd have HR all over me for sending a file externally. For the purposes of an interview, remember that IRRs are essentially a CAGR calc - also useful to remember certain 'landmark' IRRs (e.g. for 5 year horizons: 2.0x MOIC=15% IRR, 2.5x MOIC=20% IRR, 3.0x MOIC=25% IRR). Those are ballpark figures obviously, but very useful for back of the envelope LBO math.

.

Liked those figures. Cheers.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

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