Private Equity, leveraged buyouts (LBOs) and LBO modelling

Description

This programme will teach you step-by-step how to build a leveraged buyout model. This is exactly the kind of model you might use as an investment banking analyst to “trawl” for deal opportunities and prepare a pitchbook. The crucial word here is Leveraged and a key element of the programme is to introduce you to the typical debt instruments used, the different roles they play in leveraged financing schemes and how the market has changed.

The bottom line here is that the leveraged financing market in Europe grows more and more like the US market in terms of the depth of liquidity available, the range of investors, and the aggressiveness of financing terms. We’ll give you some background into the development of the market and how the arrival of new investors, such as Hedge Funds and CLOs pre-crunch, and more recently insurance companies and other institutions to the B loan market, have changed the funding landscape.

The model we’ll build is highly flexible, so it will allow you to model “old-school” A,B loan and mezzanine structures, unitranche financings and mixed loan and high yield bond schemes.

The model will produce all of the main return metrics that P/E investors use and the standard credit risk metrics that potential debt investors will use. We will also produce a value bridge – disaggregating returns into their various drivers: sales growth, operating margin expansion, debt paydown, “multiple arbitrage” and fees.

Simple models like this one are excellent tools to give you insight into what drives the economics (or lack of!) in a deal. This is precisely the sort of model you might build as part of your investment banking induction programme (or indeed you might discover it’s the “standard model” in your department – albeit with a few formatting changes). We hope you enjoy the programme.