Comments (58)

Feb 13, 2018

Only one model (LBO)
I was in charge of projecting interest expenses, which I hard coded as a percentage of sales
Leveraged finance group, top european bank

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Feb 13, 2018

haha, welcome to high finance. I bet your manager said something like "Don't make anything fancy - we need a first draft of the model asap"

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Feb 14, 2018

this. Forego the fanciness pls.

Feb 13, 2018

LBO, DCF, MM, and of course company forecasts. Usually, in your the first year you'll copy other peoples' models or use a friend's template. 2nd year I built my own from scratch so that I could drop in a forecast and a couple of assumptions to have a working model in <15 mins.

My experience reflects M&A group at an EB.

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Feb 15, 2018

Our first year analysts typically build over ~30 full LBO models from scratch in their first year. At least 10+ practice models starting out, then a new model/LBO situation every two weeks on average throughout the year.

Financial Sponsors, BB.

EDIT: LOL, >dozen SB for the above commenter "one model," MS for me truthfully explaining that our analysts do a lot of models. Guys, don't be triggered. This should inform your view while recruiting that different banks (and David could even be at the same bank as I am since our LevFin team doesn't model) approach deals differently.

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Feb 13, 2018

Jesus christ

Feb 14, 2018

I hope he's trolling.

Feb 13, 2018

By the end of their first year, I would assume they can build LBO models in their sleep, right?

How many times will the first year analysts actually be doing modeling that contributes towards the deals they're on though?

Feb 15, 2018

Our first year analysts run the live model for the actual deal, on behalf of the entire team, from Day 1.

Feb 14, 2018
Synergy_or_Syzygy:

Our first year analysts typically build over ~30 full LBO models from scratch in their first year. At least 10+ practice models starting out, then a new model/LBO situation every two weeks on average throughout the year.

Financial Sponsors, BB.

Can I ask why? Like you are literally having the analysts building out the sources/uses, cash sweeps, PF balance sheets, etc. from a blank excel every time?

I understand why it is helpful to have them build the practice models from scratch, but a good LBO model template should have enough functionality to be modified to fit a new deal scenario, no?

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Feb 15, 2018

Have found templates to be more trouble than they're worth. At least at our bank, the template is so complicated to be able to fit "any scenario" that in a simple scenario, there are tons of unused lines and checking the model becomes tedious. Our team prefers to create a new model that only has what's necessary, and build out complexity as it comes. It has the added benefit of making our first year analysts pretty fluent at modelling at the cost of only a few hours per new model.

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Feb 13, 2018

Hi
Like many european banks my employer makes no distinction between levfin and sponsors. Rather between origination (talking with the sponsor, holding the model and negotiating the doc) and syndication (HY and Loans capital market teams trying to get us rid of our U/Ws)

I hope this clarifies

Feb 15, 2018

Makes sense; our Sponsors, LevFin, and Syndicate teams are separate. In a regular way deal, the Sponsors or occasionally the industry coverage team holds the model, while LevFin does debt comps and helps inform pricing views.

Feb 21, 2018

Would this mean your LevFin/Sponsors group does the modeling because it holds both? If not, who would? I understand how it would be at a BB, but interested in the role of a LevFin group at a large European bank

Best Response
Feb 13, 2018

Change "build" to "bang" and we could get a much more interesting thread goin here

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Feb 14, 2018

Not gonna lie, i originally read "bang" and was very confused when i saw LBO commented.

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Feb 14, 2018

and the number is still the same for 99% of people on here

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Feb 16, 2018

Yep. ZERO.

Feb 14, 2018
clickers19:

Change "build" to "bang" and we could get a much more interesting thread goin here

+1SB - I like your style

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Feb 15, 2018

agreed ive wasted so many hours trying to fookin understand models that are meant to handle different situations. feel like im manning a space ship when i could just build this from scratch

What concert costs 45 cents? 50 Cent feat. Nickelback.

Feb 16, 2018

...do fear the MDs old HP 12c calculator, is invariably right!
As an analyst, It helps understand where the issue is, when you build the model and know it inside out.
Turn tables, I expect the Analyst to find where the bug lies, understand it and solve it...

Feb 16, 2018

"Models" can be extremely vague.. As a first year, I probably created 5-10 models but at various ranges of difficulty. The 1 full sell-side operating and valuation model with 40 tabs (financial statements, depreciation/capex schedules, debt financing scenarios, etc.) would not compare to the quick and dirty LBOs I'd create to run transaction scenarios. That being said, your first year experience should incorporate a variety of modeling to help you get familiar and prepare you to be able to add functionality in any scenario.

Top bucket analyst, EB. Transitioned to MM PE after first year.

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Mar 25, 2018

.

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Feb 20, 2018

Any model with less than 65 tabs is bullshit. If an analyst ever shows me a model with less than 65 tabs I make them go add more before I review.

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Feb 16, 2018

It's not really a model unless you're clenching your cheeks hoping the model you v'd up on 50 times isn't about to crash when you save/open it...

Mar 24, 2018

Why would a seller care about debt financing scenarios?

Feb 21, 2018

Too many

Mar 24, 2018

Alright, I am going to ask the dumb question here. What about first year Associates fresh out of MBA?

Apr 8, 2018

I banged 2 models in my first year. They were both black and claimed to have been in Ebony Magazine. They were easy as pie.

Apr 8, 2018

Varies from place to place and on the needs of the project.

I prefer building my own, because I feel like models are a relatively personal sort of thing - everyone's got his own take on style, and stuff. If you build the model yourself, you'll actually be able to understand it.

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Apr 8, 2018

Generally how long does it take to get from a blank excel sheet to a full 3 statement operating model for a bog standard non financial company? I find laying out the historic spreads takes ages. Do you guys model out every line item or do you aggregate line items to make things easier?

Apr 8, 2018

That I think depends a lot on your experience, ability and how in-depth the model is. If you haven't put together a model ever it will probably take quite a while. It also depends on how complex the transaction is and how in-depth you model everything, as in whether or not you aggregate a lot of stuff or try to be more exact with each item.

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Apr 8, 2018

Generally I use templates (LBO/Recap Model, Merger Model). I build out the operating model line by line with detail (usually monthly for 1-2 years, then annual) and link the operating model to the templates, which are annualized only and have more of a summary feel.

Hard to ever assign a time frame towards the build out b/c it truly depends on the level of detail you are provided by mgmt.

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Apr 8, 2018

build-up is company specific, rest is template

Apr 8, 2018

You hire an excel genius fron asia and pay them sweatshop wages to do it for you.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Apr 8, 2018
heister:

You hire an excel genius fron asia and pay them sweatshop wages to do it for you.

Sure, if you want the quality of toys infused with lead.

Apr 8, 2018

A slightly different perspective coming from the lower MM side of things:

A lot of our clients are pretty shitty when it comes to FP&A. Some of them don't have operating models or 5 year plans, and a few don't even have a detailed budget for the current year. At this level we come across a lot of operators who aren't really executives, but they have bootstrapped their businesses and kinda by default end up as CEO. Most will have a CFO but some will rely solely on a Controller to handle the finance and accounting aspect of things.

The detail of our model is highly dependent on what we have to work with. I would estimate that with ~50% of our clients, we need to hold their hand as they build out projections. Often times we will just assume that responsibility ourselves and management will provide heavy input. This is extremely difficult - FP&A modeling is highly industry specific, so if you are working in an industry that you aren't super familiar with you need to learn all of the revenue and expense drivers. In these cases we generally keep the operating model extremely high level, basic assumptions, rely on historical seasonality, etc. and we work in a few growth initiatives as dictated by the client. In other cases we will be given a detailed operating model from our client, that will break down line items by individual drivers and data backed assumptions. Our role in that case is to audit the model, tweak assumptions where necessary, and provide heavy input as to how a sale and/or capital infusion will flow through.

Once we have our operating model set we will usually just link it up to our standard company template and customize based on the industry, accounting practices and practical level of detail for a given client. On the surface this seems like it would be simple, but it actually takes a fair amount of customization and it makes it significantly harder to spot errors. On the plus side, formatting is taken care of, CapIQ plugins are set to refresh automatically and the summary output populates automatically.

If we are working on a model for a client pitch we will usually just have the past few years of audits (sometimes not even audited if the company is especially small or young) and maybe some high level projections to work with. In this case we use templates to build out a pretty standard DCF, transactions and public comps valuation. We generally don't go into a ton of detail on assumptions, relying mostly on historical trends. The goal is to give the prospect a range of values they can expect and some practical transaction scenarios (we try to keep it conservative), and senior banker expertise is the most relevant barometer here.

Another thing to keep in mind - all of our clients/prospects are private companies, which simplifies certain aspects of the model and makes it easier to use a template.

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Apr 8, 2018

LOL, people obviously can't take a joke. Seems like street wanna bes are getting lamer by the day.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Apr 8, 2018
heister:

LOL, people obviously can't take a joke. Seems like street wanna bes are getting lamer by the day.

Can't believe someone threw MS at you. I was just knocking the quality, but we've been approached many times to "outsource" our analyst responsibilities. I forget the name of the group, but they have a bunch of cheap labor conducting market research, basic accounting/financial analysis, etc.

I just don't trust them.

Apr 8, 2018

In my experience (SA and FT) there were firm or group-wide templates to use for models. Of course, you still have to do lots of customizing to get it to match your specific deal, but having something to start from saves a lot of "reinventing the wheel".

Apr 8, 2018

I generally build my models from scratch as soon as I receive the OM and my assumptions are based on lengthy discussions with my working group to determine the appropriate S&U, growth rates, and target IRR. We don't have an in-house template that we use for each deal although we occassionally reference models that were provided to us by our sell-side bankers in the past.

You should be able to build a basic model by the end of your training session (and probably before). As long as you understand the links in the financial statements building an operating model, merger model, and/or lbo model is pretty straight forward. The assumptions aspect of the model is the most difficult due to your lack of experience but that obviously comes with time.

Apr 8, 2018

In my experience as analyst, 90% of the time I was able to begin a model with a template / previously completed model. Of course, like others have said, adjustments are made, so it is imperative to understand the links/relationships between the financial statements. I was in an industry group so sometimes I had to build some random operating statistic model from scratch to drop in an OM.

Also, always check your work before you let an Associate review. Especially when using a previous model; Company names, dates, and obvious assumptions etc. need to be correct the first time...

Apr 8, 2018

To me, this answer depends on the amount of time I have to work with. I have formats and styles I obviously like to keep, but if I have a couple of days buffer, I will build my model from scratch. I work with a lot of private companies and typically start from their trial balance and build up from there, but that is tedious and requires a significant amount of time.

When in a time crunch, I have a DCF and LBO template that I use for quick fire drill models. For instance, the other day I had to model out a buyout of minority (33%) shareholders of a private company (essentially a recap). The only kicker was the meeting was scheduled for 8am and I got staffed at about 9pm. It is those types of situations when having an easy to use template that you are comfortable using in a variety of scenarios will truly show its merit.

Apr 8, 2018

Sometimes people will come to me and say, "We need to do a merger/lbo model of X, Y and Z and the meeting starts in 20 minutes - can you finish in 10?"

In those cases I will use a template and make it very, very simple to finish on time.

For clients or situations where I have more time, I will usually start with an existing template and modify it appropriately. Sometimes if the situation is different enough, e.g. a divestiture of multiple divisions or something along those lines, or a weird reverse merger or something, I will just start from scratch.

In general I try to avoid starting from scratch whenever possible, because 90% of the time there's redundant work, e.g. linking financial statements, that is the same for almost all companies.