109 19 LBO Modeling Test
Answers
MODELLING IN FINANCE
, lOMoAR cPSD| 46919909
LBO Modeling Test from Blank Excel Sheet – 60 Minutes – ANSWERS
You have 60 minutes to complete this LBO modelling test from scratch, starting with a blank
Excel sheet and using no outside resources or templates. Once you finish the model, respond to
the case study questions at the bottom.
A private equity firm plans to acquire a private, family-owned widget manufacturer (“Widget
Co.”) with annual sales of $500 million and EBITDA margins of 20% for 12x LTM EBITDA. The
transaction will be structured as a cash-free, debt-free deal, with a possible cash injection in the
beginning.
Total advisory and financing fees will equal 2% of the Purchase Enterprise Value. For simplicity,
assume no amortization of the financing fees.
The PE firm plans to fund the deal with the following:
• Term Loans: 3x EBITDA with a floating cash coupon rate of Benchmark Rate + 300 bps,
mandatory principal repayments of 5%, 10%, 10%, 15%, and 20% in Years 1 – 5, and a
50% cash flow sweep. The Benchmark Rate is expected to increase from 1.5% to 3.0%
over 5 years.
• Senior Notes: 1x EBITDA with a 3% fixed cash coupon rate, 5% PIK interest, and no
principal repayments (mandatory or optional).
• Subordinated Notes: 1x EBITDA with 10% PIK interest and no principal repayments
(mandatory or optional).
Management will also receive a 5% options pool, with an exercise price equal to the PE firm’s
per-share offer price to acquire this company.
The company’s operational profile and forecasts are described below:
• Annual Widget Sales: 4 million units; expected to grow at 10% in Year 1, declining to 6%
growth by Year 5. Average prices will initially increase by 5% per year, falling to 3%.
• Widget Factories and CapEx: 8 current factories; $2 million in Maintenance CapEx per
factory and $25 million to build each new factory.
• Expenses: 50% Gross Margin on widgets declining to 45% by Year 5; fixed expenses
should rise in-line with average widget pricing.
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Answers
MODELLING IN FINANCE
, lOMoAR cPSD| 46919909
LBO Modeling Test from Blank Excel Sheet – 60 Minutes – ANSWERS
You have 60 minutes to complete this LBO modelling test from scratch, starting with a blank
Excel sheet and using no outside resources or templates. Once you finish the model, respond to
the case study questions at the bottom.
A private equity firm plans to acquire a private, family-owned widget manufacturer (“Widget
Co.”) with annual sales of $500 million and EBITDA margins of 20% for 12x LTM EBITDA. The
transaction will be structured as a cash-free, debt-free deal, with a possible cash injection in the
beginning.
Total advisory and financing fees will equal 2% of the Purchase Enterprise Value. For simplicity,
assume no amortization of the financing fees.
The PE firm plans to fund the deal with the following:
• Term Loans: 3x EBITDA with a floating cash coupon rate of Benchmark Rate + 300 bps,
mandatory principal repayments of 5%, 10%, 10%, 15%, and 20% in Years 1 – 5, and a
50% cash flow sweep. The Benchmark Rate is expected to increase from 1.5% to 3.0%
over 5 years.
• Senior Notes: 1x EBITDA with a 3% fixed cash coupon rate, 5% PIK interest, and no
principal repayments (mandatory or optional).
• Subordinated Notes: 1x EBITDA with 10% PIK interest and no principal repayments
(mandatory or optional).
Management will also receive a 5% options pool, with an exercise price equal to the PE firm’s
per-share offer price to acquire this company.
The company’s operational profile and forecasts are described below:
• Annual Widget Sales: 4 million units; expected to grow at 10% in Year 1, declining to 6%
growth by Year 5. Average prices will initially increase by 5% per year, falling to 3%.
• Widget Factories and CapEx: 8 current factories; $2 million in Maintenance CapEx per
factory and $25 million to build each new factory.
• Expenses: 50% Gross Margin on widgets declining to 45% by Year 5; fixed expenses
should rise in-line with average widget pricing.
1 of 3
