LBO Modeling

Hi all - Been trying to fully understand the sources & uses of CF/DF LBOs vs. Non-CF/DF LBOs. The picture is an example. Am I approaching this the right way? Thanks.

12 Oct 2020

I am doing an LBO model based on a 10-K -- My question is generally, what is safe to totally exclude from the model for simplicity's sake? E.g. if the 10K and historical show DTAs, DTLs, unearned revenue, etc., can I just omit those when modeling? And if so, how do I go about doing that? Broadly, when trying to simplify a model based on a 10K, should I consolidate these omitted categories into "others" or can I just ignore them entirely? And what other adjustments might I need to make separately?

22 Sep 2020

Would it be possible for a private equity sponsor to issue themselves a dividend with the a portfolio company's excess cash flow, rather than by taking on new debt (assuming they have paid their mandatory amortization on the existing debt)? TLDR; Can a a sponsor do the "dividend" without the "recap"?

17 Apr 2020

Quick question I thought I'd fire out into the forum, I have a interview coming up with a MM mezzanine firm that invests mostly in business services and the restaurants/retail space. I'm pretty much flying blind with respect to modeling for retail and restaurant business. While some of the stuff that's been posted here before is helpful, I was wondering if anyone had decent primers/case studies/old models they'd be willing to swing my way so I'm not blown out of the water when interview time rolls around. I'm happy to share some old LBO models I've picked up along the way, if anyone is able to

10 Dec 2020

Hi Everyone, I've been going through some LBO models and I am seeing varying ways on how to calculate management options at exit. The two methods I see are either: 1. Excess equity aka exit equity less initial sponsor equity * mgmt option % or 2. Treating the options similar to stock options in TSM where the options get exercised then the proceeds get added to exit equity value then mgmt receives option % * Exit equity value inlc. option proceeds Method #2 seems more practical to me yet I still see a lot of models using method #1. How do you determine which method to use in the context of

09 Dec 2020

Hi there. I saw a recent question here where I could not find the answer and was hoping you could help. The transaction is being funded with a 1.0x contingent seller note. this note is assumed to be paid out in full (at exit) if seller meets a certain ebitda target at exit, and is payed out at a certain % between a range of EBITDAs. Does this show up on S&U? Also how would you model out this note at exit if the target is hit / not hit. If it is not hit does it turn into sponsor equity or how does that affect sponsor returns ? Do you have any tipps where I can find Excel lbo models with

27 Nov 2020

Hi guys, I was looking for an answer to the question why existing debt does not matter in a leverage buyout. I already checked the existing threads, but could not find an answer that helped me. Sorry if I got his wrong: - I always thought when buying the target the base price is the Equity Value (the fully diluted outstanding shares of the company x share price) + if there is debt, it will be A) either assumed as it is (then it does not increase the purchase price) or B) is refinanced (so additional funds are needed to replace the debt with new one and narrows the purchase price to EV) - What

10 Nov 2020

Hi guys, I have recently decided to pursue a role in PE. I am a 1st year associate at a BB (think MS, GS) in a group focused on sales of structured products in EM; not at all similar to M&A or LevFin. I have been approached by several HH because of my experience @BB but, because of my role, I have not developed the "typical banker" skillset, yet. KEA sent over an opportunity for a PE role in KKR. First-round is a "model test (2hrs) run by Kea at Kea's offices involving building an Operating Model, LBO, and answering questions on value creation". Would you please give me some insight on what I

27 Oct 2020

Quick question on LBO modeling. I am running an LBO on a company with a 60% stake in a sizeable JV. I have headline sales, EBITDA, net income forecasts for the JV from brokers. To run the LBO would I strip out the JV financials from my P&L and subtract the net income attributable to other shareholder in JV from my cash flows to properly calculate free cash flow and valuation metrics? In that case I don't need to include NCI in EV to Equity bridge. Any other adjustments I need to make to P&L? Additionally, Would the financing EBITDA for the LBO be based on the consolidated EBITDA (i.e

23 Oct 2020

The title says it all -- if you're providing a lot of the assumptions based on a CIM or 10-K and some limited market research, what range of IRR between scenarios would raise the red flags to suggest "this model isn't specific enough" E.g. right now, I'm looking at a 19% IRR in my base case, but this jumps up to 28% or down to 10% when I switch cases. I've tried to limit a lot of the variables that change in the cases, meaning most change is occuring in the revenue growth rates and margin improvements / COGS. Is this normal or should I try to tighten up my projections and assumptions?

24 Sep 2020

If you're looking at a company where, based on the EV/EBITDA multiples used, your TEV is less than the book value of assets, what does this mean? In this scenario, I assume it would mean that it's primarily due to a significant intangibles value and some goodwill. What implications might this have as you build out the rest of the model and what does this mean for balance sheet adjustments?

23 Sep 2020

Context: I'm an analyst at a BB starting their second year. I'm trying to recruit to a HF and have had good communications so far with recruiters, quick response rates, and a few potential interviews coming (already completed a first round for one). From a market / idea generation perspective, I've been doing a ton of reading (both the news + the books everyone recommends) and have networked a ton. The networking has really helped in understanding the industry and learning the lingo, as well as for generating pitch ideas. The Issue: My group is not model-heavy. I'm in the debt world and

31 Aug 2020

I was wondering what would be the best program/course you can do that will give the most respected accreditation(i.e accepted by recruiters/IBs/employers) for financial modelling.

12 Sep 2016

I've started to practice paper, basic and full LBO modeling but still struggling to complete the exercises within the time limit I should expect in an interview. Are there general tips to improve on speed when building an LBO model from scratch? Specifically I'm interested in tips around: 1) Formatting / setting up a base template - I've seen a range of templates that vary quite a bit in structure and level of granularity. What would be the minimum viable structure that would work under most scenarios I'd see? 2) Setting up income statement, B/S, CF statement model drivers based on historicals

23 Dec 2019

Hello everyone, I have a question about purchase premium and goodwill creation for minority investment deals. We both know that in a LBO deal, equity value is usually much larger than Shareholders' Equity in Balance Sheet. Then we have to do the balance sheet adjustment: allocate the purchase premium and calculate goodwill creation. My question is, how do you handle these purchase premium and goodwill creation in a minority investment / Growth Capital model? My previous thought is that minority investment / Growth Capital model is pretty straightforward: work out 3-statemnt forcast and infuse

14 Feb 2017

Hey guys! So I've been preparing for my M&A interviews lately and I have a doubt regarding the LBO Model. Basicly, I have been seeing 2 different models: 1) Entry & Exit multiples are assumed and a target IRR is set but you know nothing yet about purchase price & equity use; you work out your financial statements, determine the debt schedule; get the final EV at exit period with your exit multiple; then take off debt remaining and divide by (1+IRR)^period to get the NPV of equity value, divide this by fully diluted shares outstanding and then determine if you invest or not based on the premium

01 Feb 2019

Hi all, I have a question about M&A and LBO modeling. I'm a recent grad and am interested in research/analyst positions where I use financial modeling to make projections on stock valuations. Now, since I am interested in such positions in wealth management/investment management firms, and NOT Investment Banking, do I need to know M&A and LBO modeling for such roles? I guess another way to put it is: if I were in a position where my primary responsibility was to create financial models to determine the best stocks/investment vehicles to put in the PM's portfolio, what would be the essential

10 Dec 2018

Hi guys, How would you go about selecting an appropriate LBO candidate which would fulfill 2 purposes: a) practice the technical LBO modeling aspects but also b) simulate whether the target would actually make an interesting LBO candidate...i.e. giving the practice some real life application and kick ...rather than just taking company X financials from 3 years ago... How would you go about screening for right candidates given no access to Capital IQ, Factset. Your ideas are highly appreciated! Thx

13 Jan 2010

Let's say you're a sponsor and acquiring a 60% stake in a business segment of a larger conglomerate. The conglomerate parent retains a 40% interest. Also for simplicity the transaction is a debt free transaction (meaning debt does not fund the purchase price and there is no debt on the business segments books) If the purchase price is $60MM, opening cash balance is $2MM, and fees are $1MM would the Sources and Uses look like this: Sources: 1) Sponsor Equity = $38MM = 60% * $63MM (purchase price, opening cash, fees) 2) Conglomerate Parent Equity = $25MM = 40% * 63MM (purchase price, opening cash, fees) Uses: 1) Equity Purchase Price = $60MM 2) Opening Cash Balance = $2MM 3) Fees = $1MM

15 Feb 2011

Understood that bridge loans are typically replaced by high yield bonds, but is anyone aware on how that would affect the inputs on the LBO model? That is, should the bridge loan debt repayment schedule mirror that of a typical high yield bond debt repayment schedule? Or is there a better way to model this? Thanks in advance.

25 Apr 2018

I'm curious to get everyone's opinion on the amount of detail surrounding your income statement projections. Specially, what goes in to your revenues & expense build?

04 Mar 2018

When looking at the pro forma BS after the LBO transaction, does the new equity always equal the equity paid in the sources table? I see a case where the BS balances, but the pro forma BS equity is not the same as the equity in the sources table. What would the discrepancy come from?

29 Aug 2009

Hi, I've just finished a LBO model with a 2 dimensional datatable, with the effect of different values of the purchase price of the company and EBITDA exit multiples on the IRR of the deal. Would it also possible to build a 3 dimensional datatable (or graph?) to display the effect of three variables on the expected IRR: purchase price, EBITDA exit multiples and % shares the PE firm will obtain from the firm at purchase? Thanks guys! Kind regards Mike

24 Jun 2009

Some quick questions as I'm having some trouble modeling these: 1) Has anyone had any experience with Capex Lines? If so, what are the details on how they work and how would you model it? Never been involved on a deal that had one so I'm in the clouds about it... 2) I usually model the capital leases I amortize it with an PMT function in order to extract a uniform payment then just calculate the interest portion seperately (the % payment * outstanding balance) for the purpose for flowing it to the P&L... Anyone else have a different way of modelling it?

29 Jun 2009

Can someone go through the different ways an LBO model could be used or built. Meaning, to my understanding at least, I know sometimes price can be an independent variable, or dependent on the IRR and set capital structure. Any input would be much appreciated. Thanks.

21 Mar 2009