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Training Course Summary:

This course covers the strategic and financial reasons for LBO’s. Participants will value the target business using multiples, use acquisition arithmetic to calculate goodwill and forecast a pro forma balance sheet by using the most appropriate sources of debt (revolver, senior and subordinated) and equity (institutional, management and preference) finance.

Participants finish the model by completing the cashflow and debt & Interest schedules. Exit values are calculated and the IRRs generated by each investor estimated.

Using the integrated model the students will then use sensitivity analysis to derive the optimum financing structure taking into account the financial constraints of each investor.

Case Study: The main case study is based on Wagamama (a private restaurant chain operating in the UK and Ireland). 3 other case studies are used to illustrate particular issues.

Training Course Overview/Content:

Private Equity Market Overview
Traditional players
New Investors
Contrasting Hedge Funds/PE funds characteristics

LBO Modelling Overview
Overview of simple LBO model to:
• Highlight links between Income Statement, Cash Flow & Balance sheet
• Explain uses & sources statement
• Explain proforma balance sheet

Case Study: Introduction to Wagamama case study and the detailed LBO model

Uses of Finance
Purchase Equity
Current pricing trends
Target characteristics
Typical valuation metrics
• EBITDA
• DCF
Size/Control/Liquidity discounts
Buying shares or assets
Explaining cash free or debt free purchases
Common issues with completion balance sheets: what are you actually buying?
Structuring purchase to maximise fund returns
• Tax issues
• Managing the investment

Refinancing needs
Existing debt when can/should you keep it?
Capex requirements
Working capital needs

Financing fees
Typical trends in arrangement fees and commitment commission spreads
Institutional equity fees
Typical transaction advisors costs
Stamp duty costs

Case Study: Modelling the uses of Finance

Sources of Finance
Institutional and Management Equity
Typical funding terms (dividend, capital and voting rights) and target returns
Protecting the funds investment
Incentivising the management, management exits/ratchets

Debt providers and their typical characteristics
Traditional/new lenders
Senior tranche profiles
A, B, C, RCF
Subordinated tranche profiles
• Second lien
• Mezzanine (with/without warrants)
• PIK
• High yield bonds
• When to issue public or private debt
Current trends & issues

Capital Structure
Optimum capital structure?
Stressing for defaults
Typical Financial Covenants
General covenants
Ideal capital structure
Calculating the weighted average cost and duration of a lending structure

Case Study: Choosing the best capital structure from 3 typical competing offer letters

Case Study: Wagamama: Modelling the Sources of Finance

Modelling the Proforma Balance Sheet
What changes
Treatment of costs/purchased goodwill

Case Study: Wagamama: modelling the proforma balance sheet

Modelling the cashflows
Estimating cashflows from operations and investing
Calculating the funding shortfall/surplus
Modelling the new debt balances after mandatory and discretionary debt &
interest payments/new issues
Incorporating the cash working capital needs
Flexing the Sources of funds: Modelling the Management, Institutional,
Preference Equity and Revolver, Senior and Subordinated debt
Estimating an optimum financing structure – maximising all parties IRR ratios
and lenders ratios

Exits: contrasting different options
De-gearing investment: Invitel
Refinancing/Secondary Buy outs: Gala.
IPO: La Tasca
Trade sale
Private Equity Securitisation: Prime Edge

Case Study: Wagamama modelling exit valuation and IRR’s