Lbo (Leveraged Buy Out) Modelling

Learn the intricacies of an LBO transaction and build the financial model to help structure and analyse a deal.

What you'll learn

Learn market practices and structures for leveraged buyout transactions

Understand the drivers of leveraged buyout structures and the specific constraints of private equity funds

Understand the relevance of different funding options -A & B loans, HY bonds, 2nd lien, mezzanine debt

Learn how to build and use an LBO model to assess deal feasibility

Using comparable transactions as a basis, be able to assess the feasibility of a deal

Use the model to calculate standard return metrics (IRR, money multiples) and investigate the operating model using ROCE

Use the model and some leverage comparables to structure an LBO financing

Requirements

Delegates should have some fundamental Excel modelling skills and basic knowledge of financing, but the specifics for an LBO model are fully explained from scratch. If you've not done so, you should have a go at our Financial Modelling program.

Description

The aim of the course is to show delegates how to assess the feasibility of a potential LBO transaction and how to flexibly model the acquisition and leveraging of a company by private equity investors.Delegates will build an integrated LBO model and a value bridge, disaggregating value added/destroyed into the various components, namely – growth, margin improvement, “multiple arbitrage” and fees. We will then use the model and some leverage comparables to structure a bid and also consider a potential competing Unitranche offer from a debt fund.The course is practical and pragmatic: we look at the typical mandates of Private Equity Funds and how that drives the structures of deals – their return requirements, hold periods and exit routes and very importantly, the range of opportunities that this gives to the Bank. We also review and model the full range of funding sources available to borrowers, including products like Unitranche which are a strong competitor for the more “traditional” cash flow lending structures offered by banks through A & B loans.Specifically, we will:Build a transaction sources and uses;Derive a pro forma opening balance sheet;Overlay a detailed pro forma financing structure on the target company comprising a mix of senior and subordinated debt. Specifically, we will model debt with PIK components such as mezzanine debt;Review current leverage market practices and structures – what financing is available and on what terms? Who are the Bank’s competitors? What is the significance of the different products: A& B loans, Second lien, HY, Mezzanine and Unitranche?Explain structural and contractual subordination and explain how they are used in creating different classes of debt and indeed how shareholder loans are used to create preferences amongst the different “equity” providers such as “rollover” equity, sweet equity and institutional funding and what, if at all, is the typical role of vendor loan notes.Build an integrated forecasting modelCalculate standard return metrics, IRRs and money multiples and investigate the operating model using RoCE;Measure the contribution of different value drivers to the total return using a “value bridge” calculationUse the model and some leverage comparables to structure a leveraged financing for an LBO.At the end of the course delegates will:Understand the drivers of leveraged buyout structures and the specific constraints of private equity fundsUnderstand the relevance of different funding options -A & B loans,Be able to build and use an LBO model to assess deal feasibilityUsing comparable transactions as a basis, be able to assess the feasibility of a dealAssess management incentive structuresBe able to assess the likely competitive threat from alternative debt providers

Overview

Section 1: Model and Leveraged Finance Intro

Lecture 1 Model build intro

Lecture 2 Private Equity fund mandate

Lecture 3 The LBO Balance Sheet

Lecture 4 Model structure and beginning the build

Lecture 5 Completing the Op Cash Flows

Section 2: Sources and Uses of Funds

Lecture 6 Sources and Uses - part 1

Lecture 7 Sources and Uses - part 2

Lecture 8 Sources and Uses - part 3

Section 3: Debt inputs and schedule

Lecture 9 Debt schedule

Lecture 10 Debt detail with LOOKUP and MATCH

Lecture 11 Debt - balance and repayments modelling

Lecture 12 Calculating repayments using a Nested IF

Lecture 13 The Debt Summary table

Lecture 14 Completing the post-financing and tax cash flow

Section 4: Returns Analysis

Lecture 15 Returns - part 1

Lecture 16 Returns - part 2

Lecture 17 Returns - part 3

Lecture 18 Returns - part 4

Section 5: Returns Decomposition and the Value Bridge

Lecture 19 Decomposition and the Value Bridge - part 1

Lecture 20 Decomposition and the Value Bridge - part 2

New analysts, those moving into a Leveraged finance team or undergrads keen to learn more before embarking on a career in finance.