In this course, we are going to work through an LBO Case Study that was created entirely by industry professionals. The objective of this case study solution will be to demonstrate how a transaction might be modeled on a live deal, complete with a step-by-step walk through of the model building process. This series will combine real life model-building mechanics with transaction theory and strategy to facilitate diving deeper into the material. The purpose of this additional detail is to help recreate an experience that more closely approximates what you might experience as a member of the deal team.
One of the things that makes private equity exciting is that no two transactions are alike, which means that the analysis required can vary wildly from one deal to the next. This is true not only of the transaction, but also the private equity firm evaluating the transaction. Some firms are more “model-heavy” than others. To overcome the teaching challenge created by the variety of approaches used in practice by different firms on different deals, in this course, we will develop a “standard” model that would generally be sufficient in most contexts. If you can complete this exercise, you will likely be prepared to meet the modeling-specific expectations of a junior role at most private equity firms.
I want to emphasize that this course will move faster than the LBO video series available at ASimpleModel.com as part of the ASM+ tier, and in some cases, it will delve into more advanced content. The ASM+ course is heavily focused on the mechanics of building an LBO model for the first time, and it takes a user-friendly approach to building the model and the associated schedules.
By way of example, in the original LBO video series, the balance sheet adjustments are presented as a series of color-coded columns, one for each adjustment required (visible in the image below). Each adjustment is listed as either a source or use of cash (italics) and a description of the adjustment is included in the same color-coded array.
This schedule also omits any pre-transaction balance sheet adjustments but makes a point to reference the significance of pre-transaction adjustments in the notes.
In contrast, the new schedule includes the pre-transaction adjustments, and it reduces the six columns used to make balance sheet adjustments for the transaction to two, which are labeled “debit” and “credit” in the image below.
This is a more elegant approach, and it communicates a more advanced skill set. I believe it is helpful to learn both, though, since the understanding of different approaches will cement your grasp of the purpose of the schedule, the steps required to complete it and how it can be changed and adapted to fit your needs.
As noted above, this course will balance model-building mechanics with broader finance theory. As you can see from the screen cap above, the new schedule is taught step by step. In general, though, anything covered in either the Integrating Financial Statements video series or the LBO Model video series will not be addressed in a similar step-by-step format. Instead, this course will proceed relatively quickly through the various steps and use anecdotes and real-life scenarios to provide more context on why things are done and how they can vary across transactions.
In summary, this is a more advanced LBO model-building series than the original, because it includes more real-world context and theory and because the schedules are more professional looking. As an investor, the model building mechanics need to be second nature so that you can spend more of your time thinking about the merits, risks and convoluted minutia of the transaction. Between the original video series and this one, you should develop a relatively strong grasp of basic model mechanics, as well as an early taste of the more complex issues that you must address on a deal.
The Private Equity Training curriculum takes this a step further and goes well beyond the LBO model to explain how industry professionals source, structure and close transactions. If you are interested in a career that involves acquisitions, this content will be enormously helpful.