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LBO Modeling Test - Mega Fund Case Study

The Mega-Fund Case Study involves building a leveraged buyout (LBO) model with a five-year investment horizon, analyzing returns, and preparing an investment committee memo. Key tasks include outlining the investment thesis, identifying critical diligence findings, and discussing risks and financial assumptions. The case focuses on a transportation management services provider with a strong SaaS platform and diverse revenue streams, requiring a thorough evaluation of its financials and market position.

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146 views

LBO Modeling Test - Mega Fund Case Study

The Mega-Fund Case Study involves building a leveraged buyout (LBO) model with a five-year investment horizon, analyzing returns, and preparing an investment committee memo. Key tasks include outlining the investment thesis, identifying critical diligence findings, and discussing risks and financial assumptions. The case focuses on a transportation management services provider with a strong SaaS platform and diverse revenue streams, requiring a thorough evaluation of its financials and market position.

Uploaded by

abcpqr721
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Mega-Fund Case Study Instructions

– Time: 90 Minutes

Step 1: Build an LBO Model with Returns Analysis

– Construct a fully integrated LBO model with a five-year investment


horizon.
– Compute the implied return such as internal rate of return (IRR) and
multiple on invested capital (MOIC) with scenario analysis.
– Insert a comprehensive debt schedule based on the stated financing
terms.

Step 2: Formulate Investment Committee (IC) Memo

– Clearly outline the investment thesis and major takeaways in a well-


formatted one-pager.
– Prepare to discuss the implicit modeling assumptions and
transaction-specific insights in-depth.
– Compile a list of six to eight critical diligence findings in bullet list
format deemed material to the investment decision.
– Come up with potential follow-up diligence questions and requests
to the sell-side banker.

Step 3: Case Review

– Engage in an 30-minute discussion to present findings in a mock IC


memo pitch (and defend investment assumptions).
– Present a formal recommendation supported by insights pertaining
to the valuation, investment merits, risks, mitigants, etc.

Situation Overview
– As an investment associate, you’ve been tasked with analyzing
Project [REDACTED].
– The sell-side banker has shared the following material to date:
– Historical Financials
– Management Projections
– Product/Service Mix and End-Market Data
– Industry Comps (CapIQ)
Key Discussion Topics

– Q. Do you recommend investing in the opportunity at hand?


– Q. Which five diligence questions would you pose to the management
team (or sell-side banker)?
– Q. Identify the most compelling and most concerning risks of the
business model, among other external factors.
– Which specific areas would your due diligence process prioritize?
– Q. How much leverage can the company support based upon the
estimated debt capacity?
– Q. What do you consider to be an appropriate purchase price at
present (i.e. the maximum in the pricing range)?

Investment Thesis

– State a clear recommendation based upon conducting a fundamental


LBO analysis and industry-specific research.
– Highlight the potential upside and downside risk of the investment
(and “fit” with the fund strategy).
– Segment the main risk factors, potential risk mitigants, and the
reliability of management’s projection model.
– Even if the recommendation is to pass, still quantify an approximate
entry multiple at which the investment could perhaps become
attractive.
– Estimate the debt capacity and outline the likelihood of securing
financing from lenders in the market.

Transaction Assumptions

– The deal is structured as a cash-free, debt-free (CFDF)


transaction, effective December 31, 2020.
– The equity component of the purchase price is expected to be
contributed entirely by the financial sponsor, [REDACTED].
– The existing management team intends to remain in place and
continue running the business post-LBO; however, assume no
rollover equity.
– The initial financing and transaction fees to assume for the LBO
model are as follows:
– Financing Fees = 3.0% of Total Debt Capital Raised
– Transaction Fee = 3.5% of TEV
– Determine an appropriate capital structure and define the entry (and
exit) multiples.
– The debt tranches available include a: Revolver, Term Loan B,
and Senior Notes.
– The estimated target hold period is a 5-year horizon, exiting at the
implied LTM TEV/EBITDA multiple.
Financing Structure

Debt Pricing Tenor LIBOR Floor Mandatory Cash Sweep


Tranche Amort.

Revolver LIBOR + 400 6 years 1.50% → N/A N/A


($80M) bps 2.00%

Term Loan B LIBOR + 425 6 years N/A 10.0% Full


bps

Senior Note 12.50% 8 years N/A N/A N/A

Other Assumptions

– Cash Interest Rate = 0.25%


– Effective Tax Rate = 30.0%
– Minimum Cash Balance (Cash to B/S) = $5M

Operating Performance

– [REDACTED], or the Company, is a leading transportation


management services provider offering real-time logistics solutions
(B2B) via a proprietary SaaS platform, which facilitates
transparency amongst stakeholders in the supply chain.
– Currently, the customer list is composed of approximately 250
active users, wherein the top customer constitutes 5% of revenue
and the top five customers represent 18.5% of revenue.
– The revenue segmentation per target end markets are as follows:
– Food & Beverage = 40.0%
– Industrials = 25.0%
– Healthcare & Pharmaceuticals = 20.0%
– Consumer Discretionary = 10.0%
– Retail = 5.0%
– Historically, the Company has exhibited consistent, market-leading
customer retention, with 75% of relationships exceeding 5 years
and 40% exceeding 10 years.
– The revenue model combines SaaS-based platform fees with
brokerage fees ranging from 10% to 15%.
Historical Financials w/ Management Projections

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