Hi all,
May be taking a 5 hour-ish test soon wherein you have to create an LBO modeling test (starting from a blank excel) and a few pages of an IC Memo.
Given this is my first time and I have very little experience with LBO models, had a couple of quick questions regarding this.
- Understand that a proforma FS (goodwill adjustment, retained earnings / SE etc.) is usually made, but do you think this is necessary for the LBO given the time constraint? The limited view I have on LBO so far is that EBITDA and cash flow are the main drivers of an LBO analysis, so not sure how much substance the proforma FS will actually add. I was thinking I would actually do away with projecting a full BS at all and just focus on building schedules for CFO-related items like NWC, etc.
(On a side note, not 100% sure why goodwill is even created in the first place - understand this is needed in a merger model but why is all this adjustment necessary when a sponsor is just acquiring a company's shares? Any color on why this is done would be greatly appreciated.)
- When calculating goodwill, does the stake % matter? In other words, how do you account for it in a <100% transaction? I'm not sure how it would balance in such a transaction.
- In these types of tests, are you usually given an initiating coverage / industry report or something to go off of? Obviously I'm sure it would differ by house and there is no one-size-fits-all answer, but most of the resources I've seen were usually take-home 24-hour model tests or something where you have much more time/resources to actually get something done. Anyone have any experience with these types of tests?
Any response would be highly appreciated!
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