I figured I would post this here because most of you are probably knowledgeable with or are at least familiar with modeling, having reached level 3
I have used LBO templates for school projects (I like Aswath’s models), and was recently asked to create one for a select list of companies as a pre-interview screen. I was given a list of companies to choose from and basically told to go wild with assumptions. No idea where to start. Anyone have a good source to teach me how to create one completely from scratch- empty excel sheet to full model?
Visit Macabacus website for both theory and the model. I havent seen Damodran models though. In LBO first we create basic business model i.e. financial projections and then we tweak assumptions for LBO. There are numerous things that we change such as finding maximum debt that can be taken on the BS of company based on Debt to EBITDA of first projected year, refinancing or keeping existing debt, whether old owners are keeping some equity or a complete buyout etc. Based on these we make sources and uses of funds which then forms the basis of our transaction adjustments for our balance sheet. Macabacus will give a comprehensive model with assumptions and theory.
Well, I have a slightly different explanation to offer. An LBO is nothing more than debt financing backed by equity. The qs. is what is the proportion of debt to equity. Now, that is a little tricky and mathematical. It all depends how fast and how much the original equity investors want to exit.So you have a time horizon to the acquisition , a certain amount of equity capital and now a proportion of debt that would maximize return to the shareholder’s upon exit without of course creating a debt overhang. So it is very much an optimizing procedure. A suitiable LPP model shall do the job in order to find out the ratio