General Course Information
Course Title
How do LBO’s work?
Course Description
Explore the principles of a Leveraged Buy-out (LBO) transaction. In this 80minute course you’ll learn about the key characteristics of LBO’s, get an
overview of the financing instruments used in structuring deals, get a grasp of
the main drivers of the IRR and learn more about the sources and uses fund
statement.
Learning Goals
By the end of this course you know enough to structure an LBO on headlines
and you’ll have a firm basis to learn more about advanced LBO topics, like
mezzanine financing, cum. prefs., cash sweeps, envy ratio’s, and so on.
Target Audience
This course is perfect for first and second year analysts active in M&A and
Private Equity, who are familiar with LBO’s but haven’t completed an LBO
transaction yet.
Time effort Learner
Videos
30 min.
Quizzes
10 min.
Case
30 min.
Exam
10 min.
Challenge
Title
Structuring the Deal LBO Style Baby! Heehaa
Description
Challenge
Create a sources and uses statement for the acquisition of a Mexican fast food
chain by a PE fund from Texas. Your firm is approached by a Texan PE fund
that is looking to acquire a Mexican fast food chain in a leveraged buy-out
transaction. They have received a number of term sheets from banks and they
need your help in figuring out how they would finance the deal.
Deliverable
Upload your sources and uses statement in Excel and a short video discussing
your result. A finished challenge should have a balancing sources and uses
statement, including all the items, used in the financing package.
Course Elements
Course
element
Title
Content type
Length
in min.
Talking Points & Key Concepts
Video
Course
Introduction
(Shown on course
overview page)
Talking Head
1
● Young professional not familiar with
LBO’s, is asked by a senior to work on
a LBO transaction.
● I am a Sr. professional advised on a
wide range of LBO transactions.
● In this course we are going to cover:
● LBO Characteristics
● LBO Modeling principles
● Sources and Uses
Video
Structuring the
Deal LBO Style
Baby! Heehaa
Talking Head,
Slides
2
● A senior explain that your firm is asked
by a crazy Texan PE Boss to pitch for
an acquisition of a Mexican fast food
chain.
● He asks you to setup a deal structure
and complete the sources and uses
table.
Open question
2
● Which steps would you take to solve
the problem?
Quiz
Video
Introduction
Talking Head,
Slides
1
●
●
●
●
Video
LBO definition
Talking Head,
Slides
4
● Definition of an LBO
● Characteristics PE firms look for
● Main sources LBO targets
Video
Typical LBO
structure
Talking Head,
Slides
2
● Legal structure of a typical LBO
Quiz
To acquire or not
to acquire?
MC questions
1
● What do PE firms look for?
● Contains two hints and an explanation
of the answer
Video
LBO Basics
Talking Head,
Slides
2
● Simple financial structure LBO
● IRR targets
Video
Return
Opportunities
Talking Head,
Slides
2
● How do PE firms create value?
Quiz
What’s our return?
MC question
1
● Calculate the IRR for a PE deal
Video
Main sources of
funding
Talking Head,
Slides
2
● How are PE transactions funded
● Main characteristics of funding
Video
Capital structure
over time
Talking Head,
Slides
2
● Development of Equity / debt funding
ratios for LBO’s over time.
Quiz
How much equity
do we put in?
MC question
1
● What are the factors determining the
amount of equity in the financing
structure?
Topics discussed in this course:
LBO Characteristics
LBO Modeling principles
Sources and Uses
Video
Structuring
Parameters
Talking Head,
Slides
2
● Key parameters you have to assess
when structuring a LBO and effect on
IRR
● Business plan, Purchase price, Funding
structure, Management package, Exit
strategy
Video
Sources & Uses
Talking Head,
Slides
2
● Key items in sources & uses
● How do they balance
Video
Funding structure
Talking Head,
Slides
2
● Example funding structure and returns
of LBO including management package
Quiz
Maximizing returns
MC question
1
● What are the key drivers of IRR?
Video
Structuring the
Deal
Talking Head,
Demonstration
in Excel
6
● Discussion of how to go from a closing
balance sheet and a deal structure to a
sources and uses statement.
● Goal is to provide the learners with a
mental framework for solving the
challenge.
● Give an example of wrong solution and
a “right” solution.
Video
Structuring the
Deal LBO Style
Baby! Heehaa
Talking Head,
Slides
2
● Texan PE Boss skipped the senior
because he knows you are the one who
does the work anyway.
● He asks you to structure the deal, given
a certain financing package.
● And he wants it in 30 min.
Challenge
Structuring the
Deal LBO Style
Baby! Heehaa
Excel file
20
● The learner gets a closing balance, a
purchase price and a financing package
● Goals is to prepare a sources and uses
statement.
● Asks learner to post his / her solution
on the forum and tick a box.
● After submission learner sees the
model solution and is asked to grade
the challenge
Video
Challenge Solution
Talking Head,
Slides
4
● Discussion of a model sources and
uses statement and degrees of
freedom.
Video
Final Thoughts
Talking Head,
Slides
2
●
●
●
●
Quiz
Open question
1
● Review answer to the open question
answered in the beginning of the course
Exam
MC questions
10
● 5 x MC questions
Lesson summary:
Characteristics LBO candidates
Modeling parameters
Sources and Uses