All investing is probabilistic, and theres a huge range of potential outcomes so its difficult to make a serious investment recommendation without examining several outcomes.
Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews. We respect your privacy.
In terms of model complexity, a single-sheet LBO with 200-300 rows in Excel is fine for this exercise. For example, maybe it could acquire smaller firms that sell software and services to dealers, or it could acquire physical or online car dealerships directly. You might also get time-pressured LBO modeling tests in early rounds in other financial centers, such as London. Although you have more time to complete them, theyre significantly more difficult because they require critical thinking skills and outside research. Without these acquisitions, the deal does not work; the IRR falls by 10%+ across all the scenarios and turns negative in the Downside case. It would be more difficult to drop the scenarios and sensitivity tables, but we could restructure them a bit and fold the scenario into a sensitivity table.
If youre targeting smaller funds that use off-cycle recruiting, the first part should be easy because you should be applying to funds that match your industry/deal/client background. Even if we think this deal is spectacular, we must consider cases in which it goes poorly and how we might reduce those risks. One common misconception is that you need to build a complex model for these case studies. To learn more about, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking. Once you have the company, you can spend the next few days skimming through its most recent annual report and investor presentation, focusing on its financial statements and revenue/expense drivers. So, I would suggest the following schedule: If the presentation is shorter (e.g., 5 slides rather than 15) or longer, you could tweak this schedule as needed. Youre not going to get extra credit for a super-complex LBO model that takes days to understand. We need at least 5 good acquisition candidates matching very specific financial profiles ($100 million Purchase Enterprise Value and a 15x EBITDA purchase multiple with 10% revenue growth or 5x EBITDA with 3% growth).
We settled on Cars.com because it had a 9.4x EBITDA multiple at the time of this screen, a declining business with modest projected growth, 25-30% margins, and reasonable FCF generation with FCF yields between 10% and 15%.
In consumer/retail, the companies had more reasonable multiples (5-10x), but most also had low margins and weak FCF generation. Discover How To Break Into Investment Banking, Hedge Funds or Private Equity. But regardless of the presentation length, you should spend MORE time on the research, data gathering, and presentation than on the LBO model itself. Please refer to our full privacy policy. Your information will not be shared. But the problem is that you probably dont have 8-12 hours per day to work on this. ), middle-market funds, or smaller, startup funds. Youre likely working or studying full-time, which means you might have 2-3 hours per day at most. In terms of the other financial statement drivers, many expenses here are simple percentages of revenue, but we could also link them to the employee count. If youre interviewing within the fast-paced, on-cycle recruiting process with large funds in the U.S., you should expect timed LBO modeling tests (type #2). Remember that LBO models, just like DCF models, are based on cash flow and EBITDA multiples; the full statements add almost nothing since you can track the Cash and Debt balances separately. As part of this process, we also need to research smaller companies to acquire, but there isnt much to say about this part. But that is not true at all because theyre judging you mostly on your investment thesis, your presentation, and your ability to answer questions afterward. Fortunately, its easy to Google the number of new and used car dealers in the U.S. and estimate the market size and share like that: The companys market share has been declining, and we expect that trend to continue, but its not clear how rapid the decline will be. Please refer to our full, This website and our partners set cookies on your computer to improve our site and the ads you see. The case study instructions state that a full 3-statement model is not necessary but even if they had not, such a model would rarely be worthwhile. With Cars.com, its clear that the companys Dealer Customers and Average Revenue per Dealer will be key drivers: The company also has significant website traffic and earns advertising revenue from that, but its small next to the amount it earns from charging car dealers to use its services: Its clear from this quick review that well need some outside research to estimate these drivers, as the companys filings and investor presentation have little. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron. Consumers are increasingly buying directly from other consumers, and dealers have less reason to use the companys marketplace services than in past years. This is another technical tutorial, so Ive embedded the corresponding YouTube video below: Were going to use Cars.com in this example, which is one of the 15+ case studies in our Financial Modeling Mastery course. Youll get a case study in virtually any private equity interview process, whether youre interviewing at the mega-funds (Blackstone, KKR, Apollo, etc. Another option is to acquire companies that can better monetize Cars.coms large and growing web traffic such as companies that sell auto finance leads. This open-ended private equity case study is often the final step between the interview and the job offer, so it is critically important. The full course includes a detailed, step-by-step walkthrough rather than this summary. The easiest method is to set criteria for the IRR or multiple of invested capital in each case and say, Yes if the deal achieves those numbers and No if it does not. Similar to time-pressured LBO modeling tests, you can get better at the open-ended private equity case study by putting in the reps.. We do achieve those numbers in this deal, but the decision could go either way because the deal is highly dependent on the add-on acquisitions. But each rep is more time-consuming, and if you have a demanding full-time job, it may be unrealistic to complete multiple practice case studies before the real thing. Its easier if they give you the company and the supporting documents like the Information Memorandum, but youll also have less time to complete the case study. The prompt here is very open-ended: We like these types of deals and companies, so pick one and present it to us., The instructions are helpful in one way: they tell us explicitly not to build a full 3-statement model and to focus on the market and strategy rather than an extremely complex model.. Reading between the lines, I would add a few criteria: We used this process to screen for companies here: In software, many of the companies traded at very high multiples (30x+ EBITDA), and others had negative EBITDA, so we dropped this sector. Finally, we need to input the financial statements for the company, which is not that hard since theyre already fairly clean: It might be worth consolidating a few items here, but the Income Statement and partial Cash Flow Statement are mostly fine, which means the Excel versions are close to the ones in the annual report. The criteria are simple and straightforward here: The firm aims to find undervalued companies with stagnant or declining core businesses that can be acquired at reasonable valuation multiples and then turn them around via restructuring, divestitures, and add-on acquisitions.. The difference is that each one gives you a different type of case study, which means you need to prepare differently: There are three different types of case studies: We will focus on the take-home private equity case study here because the other types already have their own articles/tutorials or will have them soon. Also, even with significant practice, you cant necessarily reduce the time required to research an industry and specific companies within it. The open-ended case studies type #3 are more common at smaller funds, in off-cycle recruiting, and outside the U.S. For example, maybe the targets are a 30% IRR in the Upside case, a 20% IRR in the Base case, and a 1.0x multiple in the Downside case (i.e., avoid losing money). They also hint very strongly that the model must include sensitivities and/or scenarios: You have 7 days to complete this case study, which may seem like a lot of time. We create an area for these key drivers, with scenarios for the most uncertain one: You might be wondering why theres no assumed uptick in market share since this is supposed to be a turnaround case study. You can click through to each company to view the P / FCF multiples, which you can flip around to get the FCF yields. In some cases, theyll give you a company to analyze, but in others, youll have to screen for companies yourself and pick one. We also link the website traffic to the sales & marketing spending to capture the spending required for growth in that area. Thanks for visiting! You must confirm the statement above and enter a valid email address to receive this free content. For a 15-slide recommendation, I would recommend this structure: OK, you say, but how do you actually make an investment decision?. And in media/telecom, quite a few companies had lower multiples, but the FCF math was challenging because many companies had high CapEx requirements (at least on the telecom side). In short: For a 1-week open-ended case study, this approach is fine, but this specific deal would probably not stand up to a more detailed on-the-job analysis. We respect your privacy. on-cycle recruiting process with large funds in the U.S. Cars.com Investment Recommendation Presentation (PDF).
Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. It comes down to running searches on Capital IQ for smaller companies in related industries and entering keywords like auto in the business description field. The short answer is that we think the company is unlikely to turn around its core business in this time frame, so it will have to move into new areas via bolt-on acquisitions. If you dont have Capital IQ for this exercise, youll have to rely on FinViz and use P / E multiples as a proxy for EBITDA multiples. No one cares if your LBO model has 200 rows, 500 rows, or 5,000 rows they care about how well you make the case for or against the company. The presentation includes some examples of potential matches: While these examples are better than nothing, the case is not that strong because: We end up saying, Yes in this recommendation, but you could easily reach the opposite conclusion because you believe the supporting data is weak.
If the firm interviews dozens of candidates in a single weekend, theres no time to give everyone open-ended case studies and assess them. The industry could be consumer, media/telecom, or software, with an ideal Purchase Enterprise Value of $500 million to $1 billion (sometimes up to $2 billion). So, its best to pick companies and industries you already know and have several Excel and PowerPoint templates ready to go. We guarantee 100% privacy. We pay special attention to the add-on acquisitions here, with support for their revenue and EBITDA contributions: The Debt Schedule features a Revolver, Term Loans, and Subordinated Notes: The Returns Calculations are also simple; we do assume a bit of Multiple Expansion because of the companys higher growth rate by the end: Could we simplify this model even further? And if not, you can always make a lateral move to a bulge bracket bank and interview at the larger funds if you prefer the private equity case study in speed test form. We eliminated companies with very high multiples, negative EBITDA, and exorbitant CapEx, which left this set: Within this set, we then eliminated companies with negative FCF, minimal information on revenue/expenses, somewhat-higher multiples, and those whose businesses were declining too much (e.g., 20-30% annual declines). In this case, dont even bother looking for revenue and expense information until you have your top 2-3 candidates. The private equity case study is an especially intimidating part of the private equity recruitment process. If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking. I dont think the M&A vs. IPO exit options mentioned above are necessary, and we could also drop the Growth vs. Value options for the add-on acquisitions: Especially if we recommend against the deal, its not that important to analyze which type of add-on acquisition works best.
- How To Open And Close A Wheelchair
- Rain Water Harvesting Techniques Pdf
- Town Of Burlington, Maine
- Weather Pelham, Al Hourly
- Bristol Hotels With Parking
- California Schedule P 2021
- Skydiving Height Requirements
- Emerald Vinyl Corporation Contact Number
- Rosalind Franklin Pa Program Application Deadline
- Palm Desert Greens Homes For Sale Zillow
