Lecture on LBO (Leveraged Buyout) Modeling

Introduction

• Focus on LBO Modeling, different from DCF (Discounted Cash Flow)
• Video sponsored by WallStreetPrep and Wharton
• Discusses a private equity certificate program
• Mention of Wharton professors and top private equity firms involved in the program

Overview of the Private Equity Certificate Program

• 8-week online program covering:
  • Intro to private equity
  • Investing frameworks
  • Private equity deal process, structure, valuation, and modeling
• Networking opportunities with alumni
• Includes recruiting events
• Discounts available using a specific code

LBO Tutorial

• Simple LBO model tutorial starting from scratch
• Purpose: Build foundation for future, more advanced LBO tutorials
• Offers email notifications for future resources

LBO Assumptions

• LTM (Last Twelve Months) financials:
  • Revenue: $2 billion
  • COGS: $900 million
  • OpEx: $500 million
  • DNA: $100 million
  • Networking Capital: $200 million
  • CapEx: $140 million
• Revenue growth: 10% for next 5 years
• Tax rate: 21%
• All margins remain flat
• EBITDA multiple: 10x at entry and exit
• Fees and expenses: $100 million
• Debt structures:
  • Revolver: $200 million, 7.5% interest
  • Bank Loan: $2.5 billion, 9.5% interest
  • Senior Notes: $1.5 billion, 12.5% interest

Building the LBO Model

• Sources and Uses Table:
  • Sources include Revolver, bank loans, senior notes, and sponsor equity
  • Uses include equity payment, fees and expenses, and debt refinancing
• Financial Model:
  • Built from revenue, COGS, OpEx, DNA, EBITDA
  • Calculated interest expense, taxes, and net income
• Leveraged Free Cash Flow:
  • Net income plus DNA minus CapEx and change in networking capital
• Debt Schedule:
  • Prioritize paying down revolver, then bank debt, then senior notes
  • Calculated total interest and paydown amounts

Calculating IRR

• LTM EBITDA at exit: 1127
• Enterprise value: Calculated using exit multiple
• Sponsor equity value compared at entry and exit
• IRR calculated using MOIC formula: 23.7%

Summary

• LBO model is built to evaluate IRR and MOIC
• Future videos to include more complex models and real company financials

Conclusion

• Encouragement to check out additional resources and sign-up for notifications
• Mention of future Discord and additional courses in finance and MBA preparation
• Emphasis on using the model as a learning tool for LBO and private equity.