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    LBO Modeling Test From Blank Excel Sheet - 60 Minutes

    Uploaded by

    alexander Thiel
    The document provides details for an LBO modeling test, including: - A private equity firm plans to acquire a widget manufacturer for 12x LTM EBITDA in a cash-free, debt-free deal with possible cash injection. - The deal will be funded with term loans at 3x EBITDA at floating rate + 300 bps, senior notes at 1x EBITDA with 3% coupon and PIK interest, and subordinated notes at 1x EBITDA with 10% PIK interest. - Management will receive a 5% options pool. The document outlines projections for widget sales, factories and capex, expenses, depreciation, minimum cash, working capital,

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    © All Rights Reserved
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    LBO Modeling Test From Blank Excel Sheet - 60 Minutes

    Uploaded by

    alexander Thiel
    464 views2 pages
    The document provides details for an LBO modeling test, including: - A private equity firm plans to acquire a widget manufacturer for 12x LTM EBITDA in a cash-free, debt-free deal with possible cash injection. - The deal will be funded with term loans at 3x EBITDA at floating rate + 300 bps, senior notes at 1x EBITDA with 3% coupon and PIK interest, and subordinated notes at 1x EBITDA with 10% PIK interest. - Management will receive a 5% options pool. The document outlines projections for widget sales, factories and capex, expenses, depreciation, minimum cash, working capital,

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    109-19-LBO-Modeling-Test

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    The document provides details for an LBO modeling test, including: - A private equity firm plans to acquire a widget manufacturer for 12x LTM EBITDA in a cash-free, debt-free deal with possible cash injection. - The deal will be funded with term loans at 3x EBITDA at floating rate + 300 bps, senior notes at 1x EBITDA with 3% coupon and PIK interest, and subordinated notes at 1x EBITDA with 10% PIK interest. - Management will receive a 5% options pool. The document outlines projections for widget sales, factories and capex, expenses, depreciation, minimum cash, working capital,

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    464 views2 pages

    LBO Modeling Test From Blank Excel Sheet - 60 Minutes

    Uploaded by

    alexander Thiel
    The document provides details for an LBO modeling test, including: - A private equity firm plans to acquire a widget manufacturer for 12x LTM EBITDA in a cash-free, debt-free deal with possible cash injection. - The deal will be funded with term loans at 3x EBITDA at floating rate + 300 bps, senior notes at 1x EBITDA with 3% coupon and PIK interest, and subordinated notes at 1x EBITDA with 10% PIK interest. - Management will receive a 5% options pool. The document outlines projections for widget sales, factories and capex, expenses, depreciation, minimum cash, working capital,

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    LBO Modeling Test from Blank Excel Sheet – 60 Minutes

    You have 60 minutes to complete this LBO modelling test from scratch, starting with a blank
    Excel sheet and using no outside resources or templates. Once you finish the model, respond to
    the case study questions at the bottom.

    A private equity firm plans to acquire a private, family-owned widget manufacturer (“Widget
    Co.”) with annual sales of $500 million and EBITDA margins of 20% for 12x LTM EBITDA. The
    transaction will be structured as a cash-free, debt-free deal, with a possible cash injection in the
    beginning.

    Total advisory and financing fees will equal 2% of the Purchase Enterprise Value. For simplicity,
    assume no amortization of the financing fees.

    The PE firm plans to fund the deal with the following:

    • Term Loans: 3x EBITDA with a floating cash coupon rate of Benchmark Rate + 300 bps,
    mandatory principal repayments of 5%, 10%, 10%, 15%, and 20% in Years 1 – 5, and a
    50% cash flow sweep. The Benchmark Rate is expected to increase from 1.5% to 3.0%
    over 5 years.

    • Senior Notes: 1x EBITDA with a 3% fixed cash coupon rate, 5% PIK interest, and no
    principal repayments (mandatory or optional).

    • Subordinated Notes: 1x EBITDA with 10% PIK interest and no principal repayments
    (mandatory or optional).

    Management will also receive a 5% options pool, with an exercise price equal to the PE firm’s
    per-share offer price to acquire this company.

    The company’s operational profile and forecasts are described below:

    • Annual Widget Sales: 4 million units; expected to grow at 10% in Year 1, declining to 6%
    growth by Year 5. Average prices will initially increase by 5% per year, falling to 3%.

    • Widget Factories and CapEx: 8 current factories; $2 million in Maintenance CapEx per
    factory and $25 million to build each new factory.

    • Expenses: 50% Gross Margin on widgets declining to 45% by Year 5; fixed expenses
    should rise in-line with average widget pricing.

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    • Depreciation: $20 million in the most recent historical year. Use your judgment to
    forecast this.

    • Minimum Cash: 5% of the previous year’s sales (use Year 0 sales in the Sources & Uses
    schedule).

    • Working Capital: Inventory represents 20% of sales, Receivables are 10% of sales, and
    Payables are 15% of sales.

    • Taxes: Assume a 25% effective tax rate.

    Case Study Questions:

    1) What are the IRR and multiple of invested capital (MOIC) at reasonable exit multiples in
    Years 4 and 5? Based on these results, would you recommend the deal?

    2) Are this company’s financial projections plausible? Why or why not?

    3) What is the best way for the PE firm to increase returns in this deal without changing
    the company’s financial projections?

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