Post on 06-Apr-2018
transcript
8/3/2019 Buyout Considerations
http://slidepdf.com/reader/full/buyout-considerations 1/3
James O’Gara
Matteo LuoniMatteo Masi
Brandon Parry
Ryan Brewer
LBO 201 - Deal Evaluation Case Study
Wharton Buyout Case Competition 2011
8/3/2019 Buyout Considerations
http://slidepdf.com/reader/full/buyout-considerations 2/3
2
Deal Evaluation Approach – Tell the Story
Evaluate the
Market
Evaluate theCompany
DealConsiderations
K e y S t e p s
S o u r
c e s
Your fundamental bet about the industry and the company’s ability to capture value in it.It underpins your entire investment recommendation. Make it clear!
Investment Thesis
Evaluate from an investment
perspective – take a stand High-level overview: size,
growth, trends?
Where/how is value being created or destroyed?
10-year view: need to consider
your exit, value for next buyer What are the key risks?
Where can PE create value?
Which companies are positioned to
benefit from market trends youidentified?
Financial profile – cash flow is king
Is the value proposition defendable?Key risks and mitigants
Assets – think creatively and
strategically (roll-ups, add-ons) Management strength and track
record – can you partner with them?
Key diligence items
Entry
– Valuation and deal approach – Leverage and structuring: what
are current market conditions?
– Management incentives
Portfolio
– Value creation opportunities:
what’s the plan?
Exit: sale vs. IPO, strategicbuyer vs. financial, exit multiple
Analyst reports (Investext)
Industry (Datamonitor, etc) Competitor reports
S&P’s LCD for leverage
market (on facebook) Company info – board, etc.
Public data: 10-K, etc.
Capital IQ for financials Analyst reports
8/3/2019 Buyout Considerations
http://slidepdf.com/reader/full/buyout-considerations 3/3
3
Financial Modeling
Basic
Approach
Revenue Build
– Choose an approach: top-down or bottom-up
– Should match your industry view, incorporating key variables to examine how they impact it
– Flexible and easy to understand/walk someone through
– Be as granular as possible on division/product specific revenues Cost Assumptions
– Understand fixed vs. variable costs and how flexible the cost structure is
– Think about what impacts margins: don’t just hold them flat!
– Be careful about assuming significant margin improvements
Cash Flow items
– Make sure your capex assumptions match both your revenue growth and D&A – sanity check – Examine working capital accounts for seasonality – use minimum cash balance to reflect it
– Accurately reflect below the line, cash expenses: management fee, restructuring charges, etc.
Cases
Sensitivity
Analysis
Boiling your investment thesis down to the numbers
At minimum, base and downside cases in the model
– Base is your best guess, downside is not “doomsday” but reflects a realistic, bearish scenario
Upside case may also be useful, but careful about too much optimism – “Management Case” – projections from the company are often used as this
Sensitize returns around the key variables (risks) that impact your investment outcome
– Not just entry/exit multiples, or year of exit (lazy modeling!)
– Exit multiple is typically a huge driver of returns, but so are operational/industry outcomes
– Include at least one non-deal specific driver: company growth, margins, industry outcomes