LBO training course

This training course provides the opportunity for delegates to practise and improve their ability to model LBOs using Excel.

On this course delegates imagine working with a business that is contemplating taking on extra debt as part of an LBO.

LBO modelling course – day 1 of 3

Building the core of an LBO model

  • Planning assumptions
    • Obtaining source data
    • Coding inputs
    • Structuring assumptions and anticipating scenario analysis
    • Modelling and formatting best practice
    • Good model structure
    • Good model design
Modelling.  Delegates are introduced to a case study and a set of financial statements.  Participants use that to start creating their own model.
  • Starting to forecast the income statement
    • Starting to forecast the P&L from key assumptions
    • How far can we progress?
    • What’s stopping us from continuing?
    • Key drivers for modelling
    • Key ratios driving the forecast
    • Drivers on revenues
    • Drivers on costs
    • Sources of data
Modelling.  Delegates add to their model and forecast out the income statement as far as pre-tax earnings.
  • Modelling fixed assets
    • Forecasting assets
    • Key drivers on asset intensity
    • Capital expenditure
    • Depreciation
    • Forecasting depreciation
Modelling.  Delegates analyse and forecast fixed assets, depreciation and capital expenditure.
  • Completing the balance sheet
    • Key drivers for balance sheet items
    • Which creditors can we stretch, and by how much?
    • How quickly can we collect debtors?
    • Forecasting the balance sheet
    • Impacts on cash flow
    • Is growth good?
    • Linking to other statements
    • Balancing the balance sheet
Modelling.  Delegates use their model to forecast a balance sheet for the case study.
  • Modelling debt
    • Forecasting a simple debt schedule
    • Linking to other statements
    • Tools for resolving circularity
    • Setting debt paydown
    • Iterating
    • Forecasting a more complex debt structure
    • Modelling a debt waterfall
    • Using “max”, “min” and “if” functions to model a debt waterfall
Modelling.  Delegates forecast a debt pay-down schedule for their case study.

LBO course module 2

Getting to cash flow, modelling a new deal

  • Cash flow
    • Modelling the cash flow statement
    • Key linkages to other statements
    • Presenting the cash flow statement
    • Forecasting cash flow to equity
    • Forecasting unlevered cash flow
    • The link to valuation
Modelling.  Using their model, delegates forecast levered and unlevered free cash flow.
  • Defining key outputs
    • What are the most important outputs?
    • How can they be presented clearly?
    • How can we put for example, anticipated sales, capital expenditure and working capital plans into context?
Modelling.  Delegates complete a new sheet within their model – something that contains key outputs and credit statistics and is quickly and easily readable.
  • Scenario analysis
    • What scenarios make the most sense?
    • What inputs should we be flexing?
    • How can we structure the model to run those scenarios easily?
    • What happens to our outputs as the business is stressed?
    • How can we best present the information?
Modelling.   Delegates develop a suite of scenarios for their model, setting the model up so that it contains a full record of scenarios and the user can switch very quickly between them.
  • Structuring a deal – sources & uses of funds
    • Introduction to the fundamental principles of deal structuring
    • Exploring “sources & uses” – a key learning concept for the course
    • Developing a “first cut” debt structure
    • Calculating refinancing needs
    • The role of working capital and extra cap ex requirements
    • Typical financing and transaction fees
    • Determining the equity gap
    • The impact of equity rollover
    • Concentrating on the key levers without getting bogged down in complex models
    • The impact on the model: calculating goodwill and the pro-forma balance sheet
Case study.  Delegates develop their own deal structure for a transaction conducted by the case business.

LBO course – module 3

More advanced topics, modelling LBO debt and equity structure

  • The link to valuation
    • Absolute vs. relative valuation techniques
    • Defining and refining firm value: enterprise vs. equity value
    • What is debt free cash free?  What’s the link to deal structure?
    • Relative valuation – typical valuation metrics
    • Which multiples should we use?
    • What are the pros and cons of different multiples?
Exercise.  Relative valuation of a bid target.
  • Determining debt capacity and structuring debt
    • Clear, simple and concise explanation of different debt instruments:
    • Senior debt
    • High-yield debt
    • Mezzanine
    • Payment-in-Kind
    • Understanding the nature of different financial instruments and risk profiles
    • Modelling waterfall structures
    • Estimating and optimising debt capacity
Modelling – debt structure.   Delegates develop a debt structure for the case study and start to flex the structure within given constraints.  How much debt could the business support?  How big a target could it contemplate acquiring?   What impact does changing the debt structure have on debt capacity?
  • Key considerations for debt holders – keeping finance providers happy
    • Typical covenant tests
    • Conditions of default
    • Covenant trends
    • Trends across different businesses
    • Typical tests employed by rating agencies
Exercise.  Delegates consider how S&P would rate debt in a real business.
  • Structuring equity
    • The nature of equity instruments used in buy out structures
    • The different risks and rewards accruing to different parties
    • Incentivising management
    • Key drivers for equity investors
    • The impact of loan stock & preference shares
    • The impact of mezzanine
    • Iterating to optimise rewards to key participants
Case study.  Delegates iterate with a “back of the envelope” deal structure to optimise returns.

Download the online outline for the LBO course

Here you can download the online LBO modelling course outline.