LBO technicals
What are some of the harder LBO technical questions that are asked in a FT interview?
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I am guessing you are meaning FT IBD. I do not think an interviewer would expect you to know all of the following, but it is probably better to be prepared for anything.
Also, I got asked in my interview to give an example of an LBO in every day life. Answer: Buy a house with a mortgage and rent it out. Use your rent income to pay your mortgage payments + interest. Sell it in 3-5 yr with a nice exit multiple and enjoy your > 20% IRR.
Thanks but these all seem pretty easy, but I heard boutiques really drill you on the technicals.
I am done some LBO models this summer but they were all really simple ones so i'm trying to get a feel of what kind of LBO questions more technical focused interviews (i've heard some boutiques are really technical)are like.
Ok, you already have an internship behind you. I am still having trouble believing questions to be as hard as in PE interviews. Technical questions regarding LBO could come in varity of ways. I can make up many scenarios involving numbers where you really have to know your math/LBO mechanics. The best way to learn the technicals would be to build an easy LBO model and then add layers of assumptions etc. Test yourself by asking "if I change this input/assumption, what will happen?" as you go along.
pk, would t be possible to give some exampl questions.
You will likely not be asked any of these questions, except maybe the first one, in an interview from FT:
do analysts usually build models from scratch? i interned in ER and now at MM IB and ive never heard of an analyst building a model from scratch... we just add/remove whatever we need from the pre-built company models...
Depends where you are. Some of these banks spend a considerable amount of money developing their model templates and want their analysts using them. All BBs have templates. Some elite boutiques do.
Since leaving BB, I've always built mine from scratch.
how do you reverse engineer the sale price when given a preferred return (target IRR)?
I'm making it up as I go along.
best way = data tables, what purchase multiple gives you the required IRR
Correct?
In a zero dividend model: calculate your proceeds at exit based on your multiple and EBITDA, add cash, subtract debt and you have your implied common equity value at exit. Then you use the NPV function to place your proceeds in your exit year... ie.. exit yr 5: =NPV(Target_IRR,0,0,0,0,(Yr_5_EBITDA*Exit_Multiple)+Cash-Debt)
That gives you the total sponsor contribution. Take that and add financing debt + transaction fees to get total implied purchase price.
(If you do have dividends just place them in the appropriate year in the NPV formula)
Marcus' method makes sense.
We don't have a formula or data tables to calculate purchase price in my office. The way i've done it is to just guess and check until equity returns get to where we want them, making sure that leverage ratios and cap structure stay reasonable in the process. It doesn't take very long at all. Is that bad?
its actually creepy how well marcus' method worked haha. i just tried it on an old model and arrived at the same purchase price, except before adding back transaction costs.. no idea why.
if you built an LBO for a bid, what is the least amount you should know for an interview. so far, ive got
entry/exit mutltiple debt IRR revenue growth rates
when determining the purchase price using the NPV formula, why is the cash flow zero for the first four years? aren't we paying for the cash flows to equity as well?
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