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LBO Model Analysis Guide

This document outlines the key components of an LBO model, including: 1) Determining the maximum offer price and equity sponsor IRR 2) Calculating firm value under the LBO using offer price or intrinsic equity value 3) Key participants in an LBO transaction and their roles The document then details the steps in building an LBO model, covering transaction assumptions, debt terms, sources and uses of funds, ownership percentages, and projecting debt schedules and their impact on financial statements. It concludes by discussing how to incorporate potential post-buyout add-on acquisitions into the model.

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285 views31 pages

LBO Model Analysis Guide

This document outlines the key components of an LBO model, including: 1) Determining the maximum offer price and equity sponsor IRR 2) Calculating firm value under the LBO using offer price or intrinsic equity value 3) Key participants in an LBO transaction and their roles The document then details the steps in building an LBO model, covering transaction assumptions, debt terms, sources and uses of funds, ownership percentages, and projecting debt schedules and their impact on financial statements. It concludes by discussing how to incorporate potential post-buyout add-on acquisitions into the model.

Uploaded by

ricoman1989
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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An In-Depth Analysis of

LBO Model

Linh Dao
Prof. Nick Crain
Main Purposes

1. Determine the maximum offer price based on the leverage capability


and equity return requirement.

2. Given an offer price, determine the IRR for equity sponsor.

3. Calculate the firm value under the LBO by using either the offer price
or the intrinsic equity value as the floor of the valuation of the firm.
Key Participants

Financial Sponsors

Investment Banks

Bank and Institutional Lenders

Bond Investors

Target Management
I.Transaction Assumptions

1. Target IRR and Exit Multiple

2. Purchase Price & Funds Required


1. Target IRR and Exit Multiple
2. Purchase Price, Funds Required
II. Debt Assumptions

Debt Amount & Interest:


II. Debt Assumptions (cont.)

Principal Repayment:
III. Sources & Uses
Where is funding coming from and going to?
IV. Ownership Percentages

What are the parties ownership pre- and post-deal?


Purchase Price Allocation

What is the amortization projection for the Purchase Price?


V. Debt & Interest Schedule
1. Input data from Merger Agreement

2. Sources of Funding and Revolver Borrowing Required

3. Mandatory Debt Repayment

4. Optional Debt Repayment

5. Link the Debt Schedules to Financial Statements

6. Interest Income (Expense)


1. Input data from Merger Agreement
Look for LIBOR base rate, floor, in the covenant, borrowings notes.
2. Sources of Funding and Revolver Borrowing Required
3. Mandatory Debt Repayment
4. Optional Debt Repayment
5. Link Debt Schedules to Financial Statements
Cash Flow Statement
5. Link the Debt Schedules to Financial
Statements (cont.)
Balance Sheet
6. Interest Income (Expense)
VI. Post-Buyout Add-On Acquisitions
1. Overview of Changes to the Model
2. Find Information on Potential Acquisitions
3. Check against Historical Results
4. Make Assumptions for the Post-Buyout Acquisitions
5. Reflect on the Income Statement
6. Adjust Balance Sheet
7. Update the Cash Flow Statement
8. update Debt Schedules & interest Expense Calculation
9.Verify and Check the Model
10. Evaluate Effectiveness of Post-Buyout Add-On Acquisitions
1. Overview of Changes to the Model
2. Find Information on Potential Acquisitions
3. Check against Historical Results:
4. Make Assumptions for Post-Buyout Acquisitions:
5. Reflect on the Income Statement
6.Adjust Balance Sheet
7. Update the Cash Flow Statement
8. Update Debt Schedules and Interest Expense Calculations
9.Verify and Check the Model
10. Evaluate Effectiveness of Post-Buyout Add-On Acquisitions

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