Advanced LBO Modeling – Wall Street Prep

Course Overview

Advanced LBO Modeling by Wall Street Prep covers the basic concepts of LBO, common deal structures, and existing industry dynamics. Also, it deep dives into the process of modeling, common mistakes, and effective solutions. Once you build a solid foundation, you will learn advanced topics of purchase price allocation and deferred taxes in acquisitions.

Course Outline

Introduction to LBOs and recaps

• Understanding concepts: Working through an LBO on a cocktail napkin
• What is the current financing and valuation environment?
• What are key industry benchmarks?
• LBO capital structure: TLs, Bonds, Mezz, Preferred, Bridge Loans, and Equity

The Structure of PE Firms & Investor Dynamics

• How PE funds work and where they fit in the financial system
• GP vs LP dynamics
• PE Economics: The distribution waterfall

LBO model development

• Setting up the initial valuation and general assumptions
• Calculating diluted shares
• Building the Sources & Uses schedule: Build a heavy-duty, yet flexible, sources & uses of funds schedule; Make adjustments in one place – watch it flow error-free throughout the entire model.
• Line-by-line build-up and forecasting of the income statement and working capital schedules
• Modeling LBO debt
• Term loan A/B/C– Modeling mandatory amortization as well as cash sweeps
• Revolver – Automatic cash sweep, minimum cash balance, and maximum borrowing capacity
• Pricing matrix driven off LIBOR spot rates + spread
• Senior and Sub Notes – Modeling PIK vs Cash interest
• Preferred stock – Allowing for equity kickers
• LBO returns and exit analysis for all providers of capital:
• Sponsor equity and management rollover
• Lenders and preferreds
• LBO modeling best practices
• Circularity breaker and error trapping – no more DIV#0 and REF#!
• Building key sensitivities into model outputs

Advanced LBO modeling

• Building PIK toggles into debt tranches
• Layering a Pro Forma 3 Statement Model on the LBO Analysis
• Key balance sheet adjustments in an LBO
• Advanced Purchase Price Allocation (PPA) modeling (Goodwill; Asset write-ups; Deferred taxes created in the deal)
• Toggling between LBO and recapitalization accounting treatment
• Creating a switch for Asset sale/338 vs Stock Sale tax treatment
• Modeling dividend recaps
• Attaching a DCF analysis to an LBO model

What Will You Learn?

• Deep dives into the operation of an LBO/Recapitalization according to today’s standards and credit environment.
• How to build a LBO model having “industrial strength”.
• The integration of switches for LBO vs. Recap accounting treatment.
• Effective approaches to model Senior, Revolver, Sub, Mezzanine, and preferred stocks.
• How to install a PIK toggle to various debt tranches.
• The integration of cash sweep functionality with term loan debt tranches.
• Proper how-tos to schedule sources and uses (S&U).
• The analysis and sensitization of IRRs for sponsors, preferreds, and management.
• How to develop a model with complicated accounting adjustments, such as deferred taxes, fair value write-ups, etc.
• Building up your confidence in acing your private equity interviews.

Who Is This Course For?

The professionals who want to sharpen their modeling skills through the fundamentals and advanced concepts will find this course helpful.