Hi guys,
Need your help on LBO modeling timings. Not a standard job, a pretty big one. To put it short - from your practice, how long can it take to complete a big modeling job (if we disregard any other outside factors like management etc). I would appreciate your thoughts. It's the first time I'm posting any questions, and have never spoken to anyone from PE or IB on how it works in their practice, so I would like to have better understanding of how much time it usually takes to complete certain modeling things. I'm working alone to complete everything. I'm not from PE myself, work in a closely related field and now am running a deal for a sponsor.
The task includes
- Industry: Healthcare
- Entities across multiple states, >45 locations
Stage 1 - Working alone;
- Full operational model audit and rebuild. The operational model is highly complex / detailed and huge, custom assumptions applied to standalone locations meaning there's not much room to pull standardized assumptions across the entire model (took me to complete in around 4 weeks, worked ~14-16 hrs a day with no weekends, thought I'd die tbh);
- Separate models for IS and BS + FF since the IS is so large that it can not be technically combined with the balance sheet and funds flow, the file just crashes if you add anything on top of it. The main purpose of this whole undertaking was to fully deconstruct and rebuild the operational model (and tie back to the source) used by the management and see what assumptions they are applying, do they make sense, what can be improved and are there any substantial errors;
- LBO built on top of the operational model;
- Since the LBO now is built on top of the operating model which has too many moving pieces, it's not too user friendly and can't be easily sensitized;
- From a pure modeling perspective, building an LBO on top of this operating model is a pretty ugly job and is not like building a simplified LBO where you can implement simplified scenarios for revenue and direct cost change % and other related items. Meaning that the income statement, the balance sheet and the funds flow are now pulling numbers both from the operating model (which is not easily sensitized) and from the LBO itself (purchase accounting, closing balance sheets, new interest expense etc). One of examples of this mix is capital leases, which are assumed to stay with the new owner -> this is leading to pulling interest numbers from multiple sources;
- Building an LBO on top of the operational model, clearing comments that just keep coming in after previous changes were made, took another 4 weeks (ultimately it took me a bit less than 2 months to complete this stage).
Stage 2 (starting to work on it now, also alone)
- Building a simplified model;
- The model needs to include the management case and a couple of spare cases. Additional cases for other matters like litigation and other regulatory matters to see how these issues might hit the performance of the business;
- The model has to be driven by KPI's (patient days, patients, average daily census, reimbursement rates, FTE's etc), not standard growth / change % rates applied to the IS as you would do it in a simple case;
- Since the operational model had these KPI's mostly custom for every single location, the simplified version has to be driven by something generalized, but it still has to make sense from the operating perspective;
- The model needs to have an adequate size / weight;
- Needs to include the LBO analysis;
- Since this is a "whitelabel" model, I will have to spent more time on formatting as I'm not able to use my existing formatting macros to speed up the process.
- After this is done, standard preparation of all presentation-related materials, model manuals / instructions and any other supporting stuff.
This beast is a pretty big undertaking. Your comments would really help me to understand how I did in terms of timing on the first stage - how did I do, how fast I've been. And I'm starting on the second stage now which is basically building the model from scratch and would appreciate if you could share thoughts on what might be a normal time for completing a task like this. I'm not considering other factors like outstanding financial information from management, speed of their reaction, infinite changes to the layout or names in the LBO based on the sponsor's comments (not related to technical / modeling issues), rolling forward new actual numbers etc.
Thanks!
Most of the time its OK to go with the "I can be dangerous with 95% of the answer" approach to investing. I think for the purpose of your LBO, its more about what can the downside look like? What would it take for that to happen? What does the world look like in that event? I would say you want to have a pretty good case that is just a "keep doing what you're doing" event.
It is clear that you know the ins and outs of the business, which should provide good higher level insight into the overall business and investment thesis. Your analysis could probably get done in a week or so, as it seems like your need for diligence is low at this point, but the actual financial modeling is probably a week long task at most to get to something you are very comfortable with.
Thanks for your response. Yes, at this point I'm more concerned with aggressive growth in the "management case" and would like to see a conservative picture.
So you're saying that it might be okay for additional 2 weeks total to wrap up the analysis and the model itself?
Thanks,
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