best way to model a roll-up
There's a company attempting to roll-up an industry over a period of years funded by internal cash flows and by taking on debt.
Whats the best way to model this?
There's a company attempting to roll-up an industry over a period of years funded by internal cash flows and by taking on debt.
Whats the best way to model this?
+168 | The "Not So Obvious" things that get you a return offer? | 20 | 2h | |
+103 | Is my life over after not getting GS? | 25 | 54m | |
+65 | Best IB group on the Street | 27 | 3h | |
+56 | BIG FOUR ARE PARADISE | 15 | 4h | |
+49 | Thoughts and tips on how to speak like an investment banker. | 25 | 4h | |
+46 | Tell me one good reason why Jefferies isn’t going to be a top bank in the next 5 years | 22 | 7h | |
+36 | UBS Outlook | 28 | 1d | |
+35 | Georgetown Placement for 2024 and 2025 | 21 | 6d | |
+34 | How to deal with egotistical team? | 6 | 3d | |
+33 | Highest Paid Bankers in Toronto? | 51 | 2h |
Career Resources
Rolling up the whole industry?
Just use regular Acc./Dil. model for the acquisitions
LBO model using acquisitions. Pretty standard.
Not trying to be a douche, but I think I'm missing something b/c I said Acc./Dil. - would you mind explaining at a high level why LBO vs. Acc./Dil.?
Private equity firms usually engage in rollups, not strategic buyers. I think that peinvestor is making this assumption.
PE Perspective: You should start with an LBO, since that is how you are acquiring the initial platform company.
Then, in your going-forward projections, you have the P&L and CFs of the platform. For each target acquisition, modify the cash flows for the amount that is internally financed and add in the interest expense for any new debt that is taken on. Then add the financials from the target beginning from the date where you expect the transaction to close. Do that for each potential acquisition.
Then, you should have consolidated financial statements that include the platform and all acquired targets. Assume an exit multiple off the consolidated EBITDA and calc your return.
Strategic Perspective (I'm taking a crack at this based on intuition, but haven't had to do a rollup for a strategic. This is how I would approach this): You have the acquirer's standalone financials, cash flows, and balance sheet projected. If you are financing with balance sheet cash and raising straight debt, then shares outstanding shouldn't change. Thus, many of the points I mentioned above will apply here (pro forma-ing the financials for each target acquisition and affected cash flows and net debt appropriately). You'll end up with a consolidated net income number, and then calc EPS based on the shares outstanding you assumed before.
Partially. Generally rolling up is synonymous PE. But, we will run an LBO even as we advise strategic clients on the buy side to assess the value of leveraged returns. If a strategic is planning to buy and hold and use debt to fund a significant portion of the acquisition, we want to see what the returns look like for a given transaction value (and exit value) or inversely what valuation range to target given return expectations.
BepBep, you are right that A/D is one way to do it. If the acquisition involves debt though, we will likely run both. However, the LBO has built in acquisitions that make roll-ups easier to analyze. But, what happens if it is funded with 100% debt, as CaliBanker alluded to? A/D is rather obvious at that point, though the degree will vary. But, your client wants to see how quickly they can repay debt (or make another acquisition) and the returns the acquisition(s) will provide.
Deleniti est dolor enim ipsam. At est qui pariatur. Mollitia distinctio ipsa provident.
Inventore doloremque velit omnis voluptates iure error atque culpa. Rem maiores harum sint porro. Totam temporibus possimus enim sed et. Maxime perferendis velit deserunt. Accusantium possimus iste officiis enim.
Consequatur ducimus explicabo in eaque enim voluptatem. Assumenda quae molestiae corrupti sequi cum. Voluptatem expedita eum fuga aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...