LBO Modelling

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Course Description

This practical computer based 2-day course run by a former senior City banker explores the LBO modelling techniques. 

You will start with valuing the target business and apply LBO analysis by assessing the debt capacity in order to determine the range of capital structures available for the transaction.

Through the use of more complex LBO instruments such as warrants and PIKs you will calculate returns to each of the equity and debt providers, model a more complex capital structure and calculate exit values and the IRRs generated by each investor. Various scenarios including: management, base and payout case will be analysed to derive the optimum financing structure taking into account the financial constraints of each investor.

Finally, you will undertake an adjusted present value - APV analysis, to determine where value has been created in the LBO transaction and look at a recovery analysis for a failed LBO transaction. 

All the concepts are presented through the analysis of the real life case studies and practical computer based exercises.  

By the end of the course you will be able to: 

  • Assess the debt capacity of a company in order to determine the capital structure
  • Apply credit analysis to the LBO modelling
  • Calculate returns to debt and equity providers through the use of warrants and PIKs
  • Calculate exit values and IRR
  • Analyse management, base and payout case to derive maximum financing structure
  • Apply adjusted present value APV analysis to determine where the value has been created
  • Use recovery analysis for a failed LBO transaction 

Prerequisites: Previous LBO knowledge is not required as the fundamentals will be explained before moving on to more advanced concepts but participants should be familiar with Excel.

Delegates are required to bring a laptop and a calculator. If needed a laptop can be provided for an additional fee.

What Will You Learn

Main Topics Covered During This Training

Who Should Attend

Participants requiring an understanding of LBO and combination valuation techniques and how corporate transactions are analysed and valued should attend this course.

From Corporates, Investment Banks, Private Equity, Consulting, Accounting and Legal Companies:

  • Equity Research, Analysts and Sales
  • Equity Capital Markets
  • Investment Managers
  • Members of M&As Departments
  • Corporate Financial Managers
  • Corporate Development
  • Corporate Finance Lawyers
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LBO Modelling - 2-day Course Programme

Leverage Overview

  • Background to the LBO market
  • Introductory theory - The effect of leverage on firm value

Valuing the target

  • Sourcing information – Historic and forecast data
  • Analysing equity research
  • Key attributes of broker analysis
  • Pluses and minuses of equity research 
  • Building a DCF valuation using equity research
  • Modelling the stand alone valuation

Case Study I: Participants model the stand alone valuation of the target using historic data and equity research

LBO Modelling Overview

  • Key elements of an LBO model
  • Comparing and contrasting DCF and LBO models
  • Sources and uses of funds
  • Key drivers in an LBO model
  • From stand alone valuation to LBO analysis

Case Study II: Participants use the stand alone valuation of the target to complete an LBO model

Assessing debt capacity for LBO financing 

  • Financial interdependencies
  • Financing growth
  • Sustainable debt
  • Target debt capacity assumed in a WACC calculation, debt capacity and interest cover
  • Debt capacity in LBOs
  • Debt capacity multiples in practice and credit analysis

Case Study III: Modelling the debt capacity of the target using multiple and credit analysis 

Capital providers and their typical characteristics

  • Institutional and management equity
  • Traditional/new lenders
  • Senior tranche profiles: A, B, C, RCF
  • Subordinated tranche profiles: 

              - Second lien

              - Mezzanine (with/without warrants)

              - PIK

             - High yield bonds

  • More complex issues – warrants and options
  • Typical LBO transaction sensitivity analysis, management, base and payout cases

Case Study IV: Modelling a more complex capital structure with various scenarios calculating exit value and IRR for each of the capital providers 

Assessing value creation in LBO transactions – APV analysis

  • Key components of an APV valuation
  • Unlevered value
  • Value of the tax shield
  • Direct and indirect cost of leverage 
  • APV valuation and DCF valuation
  • APV valuation in a steady state 
  • Calculating AP in a steady growth environment
  • Incorporating APV analysis in an LBO transaction analysis

Case Study V: Where has value been created, modelling APV analysis for an LBO transaction  

LBO failure

  • Calculating recoverability for different capital providers

Case Study VI: Estimating recoveries for different debt tranches

Mike Corless

The course director is a qualified chartered accountant who begun his career in Grant Thornton International and since 1986 worked in  Ernst & Young as a senior manager in the corporate advisory team, working on major acquisitions, disposals, IPOs and insolvency/restructuring transactions.

In 1989 he joined Threadneedle Asset Management as an analyst, becoming a fund manager specialising in income funds in 1991. In 1996 he joined Scottish Widows Investment Partnership as a director in the UK Equity team, again specialising in income funds. On becoming head of UK Equities in 1998, he introduced a new investment process incorporating cash flow based corporate valuation techniques. In 2000 he was appointed head of UK Equities when Scottish Widows was acquired by Lloyds Bank and he led the integration of the UK Equity teams.
 
In 2001 he joined HSBC Asset Management as European Head of Equity Research, managing a team of analysts in Paris and London tasked with developing a new research team and research process.In 2004 he was appointed Global Head of Equity Research, responsible for 60 global equity research analysts and 40 global credit analysts. He developed a global valuation and research process, training local analysts in Europe, the US and Asia in its use.
 
In 2006 he joined BG Consulting Group, a professional training company, as the head of investment banking and investment management managing a team of 12 trainers. His experience at BG included managing major graduate programmes for investment banking and investment management clients, training graduate to managing director level participants and advising clients on their training requirements for accountancy, corporate finance and valuation, investment management and private wealth training. 
 
His clients have included HSBC, Morgan Stanley, Deutsche Bank, Citigroup, Allen & Overy, JP Morgan, Barclays Bank, Barclays Wealth, Morgan Stanley Investment Management and Schroders.

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LBO Modelling <p>This practical computer based 2-day course run by a former senior City banker explores the LBO modelling techniques.&nbsp;</p> <p>You will start with valuing the target business and apply LBO analysis by assessing the debt capacity in order to determine the range of capital structures available for the transaction.</p> <p>Through the use of more complex LBO instruments such as warrants and PIKs ... In-Company