the $600mm raised in debt) and then deduct it from the $1,027mm in “Total Uses”, we see $427mm was the initial equity contribution by the sponsor. This $1bn is the total amount being offered by the private equity firm to acquire the equity of JoeCo.

In the final column, we can calculate the financing fees based on the amount of debt raised. The total debt amount will be the sum of all of the ending balances in the debt schedule, while the cash balance will be pulled from the cash roll-forward in the FCF forecast. For the last debt instrument used, the PE firm raised 2.0x in Senior Notes that carries a seven-year maturity and an 8.5% coupon rate. more cash than net income showed). In the “Cash Flow Statement Adjustments”, since Working Capital is a SOURCE of funds, the Change in Working Capital will add $6mm to cash flow each year: “OpCo requires capital expenditures of $35mm per year, and it has a tax rate of 40%. Note: A common feature in LBO models is a "cash sweep" (i.e. This is the purpose of the 1st "MIN" function, it ensures no more than $50mm could be borrowed. Once you have inputted the revenue growth rate and EBITDA margin assumptions, we can project the amounts for the forecast period based on the formulas below. Moving onto the next tranche in the waterfall, the Term Loan B will be forecasted in a similar roll-forward but this schedule will be simpler given our model assumptions. A Complete Step-By-Step Breakdown of a Real LBO Modeling Test with Excel Template. On JoeCo’s balance sheet, there is $200mm of existing debt and $25mm in cash, of which $20mm is considered excess cash. What is your next buyer’s NTM cash-on-cash yield assuming the same growth projections and 50% LTV at a 5.0% fixed cost of debt without amortization? We can now calculate the "Exit Enterprise Value" by multiplying the Exit EBITDA by the Exit Multiple Assumption. The 2% financing fee refers to the costs incurred while raising debt capital to fund this transaction. First, the interest expense line item will be calculated as the sum of all of the interest payments from each debt tranche, as well as the unused commitment fee on the revolver. The third debt tranche raised were Senior Notes at a leverage multiple of 2.0x EBITDA, so $200mm was raised. If you’re ever asked technical questions, they’re essentially checking whether you have a high-level grasp on how tweaking any of these inputs might impact an investment. As you can see below, the interest expense is $17mm each year, and the lender receives an 8.5% yield on the $200mm outstanding balance for the entire tenor. In the final step before arriving at FCF, we will deduct the mandatory debt amortization associated with the Term Loan B. Enter any dummy figure you like, purchase price is the last item we actually solve for. The revolver sits at the very top of the debt waterfall and has the highest claim on the JoeCo's assets if the company were to be liquidated. Here’s how we interpret each line in this case study and use it in the simple LBO model: “OpCo currently has EBITDA of $250mm, and ABC believes that the new management team could keep EBITDA flat for the next 5 years.”. To start, we have already calculated the “Purchase Enterprise Value” in the previous step and can directly link to it. But in this case, the only inflow will be the proceeds received from the exit of JoeCo. Start with the Income Statement – EBITDA is $250mm per year. Make sure to format this figure in black since it is a straight formula and not a hardcoded input in itself, Notice how the next period’s beginning balance matches the prior period’s ending balance. Below is an illustrative prompt on a hypothetical buyout: LBO Model Test Instructions. So you can also fill in the Depreciation figure on the Income Statement. It is entered as a positive because when JoeCo draws from the revolver, it is an inflow of cash. Since there was no mention of the revolving credit line being drawn, we can assume that none was used to help fund the purchase. The interest expense line item will remain blank for now as the debt schedule has not yet been completed – we will return to this later.


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