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LBO Case Study: BabyBurgers LLC

Summary Text

LBO Case Study Instructions | Entry-Level Private Equity Position

This LBO Case Study was designed to test a variety of skill levels. The instructions that follow apply for entry-level private equity jobs. In this exercise you are to assume the role of an independent sponsor or a member of the investment team at a private equity firm. As you work through your analysis, think about how you would communicate the risk / reward profile to investors or an investment committee. You will be provided with the information and documents outlined below, and asked to build an LBO model that can be used to communicate returns to your investors:
  • Confidential Information Memorandum
  • Financial Statements and Historical Financial Model
  • Summary Term Sheet from the Subordinated Lender
  • Summary Term Sheet from the Senior Lender
  • Letter of Intent
You will need to incorporate information contained in the two term sheets for the debt schedules in your model. You will also need to include the management fee detailed in the Letter of Intent. Otherwise the information required to complete this case study is contained in the Excel file associated with this exercise. As you will see, the assumed transaction date is 12/31/20 and for the purposes of this exercise, you may assume the associated financials for 2020 are all actuals. Obviously, the numbers beyond the current year are management projections and you may alter or adjust the forecast as you think appropriate.
This is not a guided exercise. No solution will be provided. If you forget any step of the process you can revisit the examples provided in the Leveraged Buyout Model video series. 
Task: Use the information provided to build an LBO model of BabyBurgers LLC with a 5-year projection. As you will see when you download the Excel file referenced, you will need to develop all of your own assumptions (assume any projected periods have been provided by management). Your model should include the following at a minimum:
  1. LBO model with a 5-year projection.
  2. 50% cash flow sweep that pays down outstanding debt in order of priority.
  3. Debt covenant analysis.
  4. A standard 80 / 20 distribution waterfall for equity proceeds.
  5. Exit analysis that shows returns both gross and net of fees (MOIC and IRR).
As it relates to item 3 above, for this exercise assume that you can borrow up to the amount listed on the associated term sheets. If you determine the debt burden to be excessive make an adjustment to reduce the likelihood of an event of default.
The process of building a model without a template will expose areas of weakness in your skill set. I would encourage you to attempt this exercise without downloading templates available on I would even avoid cutting and pasting line items for the financial statements. Typing them will improve retention and cause you to think through the structure of the financial statements. It also provides an opportunity to display information in your own format, which becomes increasingly important as you look at opportunities in different industries.