CareerIn 19-Week Investment Banking Workshop

LBO and M&A

LBO Example

Year 0 1 2 3 4 5
Revenue 1,000 1,200 1,400 1,600 1,800 2,000
EBITDA 100 120 140 160 180 200
Capex (100) (100) (100) (100) (100)
FCF 20 40 60 80 100

Opening Debt 500 480 440 380 300

Less FCF (20) (40) (60) (80) (100)
Closing debt 500 480 440 380 300 200

Enterprise value 800 1,600

Less debt (500) (200)
Equity value 300 1,400

IRR 36%
MoM 4.67 x

Ace real valuation interview questions: LBO

• What is an LBO? Why do you want to lever up a firm?
• What is a leveraged buyout? How is it different from a merger?
• What company is a typical LBO target of PE firms?
• Why is LBO so profitable?
 • Common multiples used by LBO?

M&A overview
Leading companies employ a three-phased integrated M&A process complemented by
diverse support teams

The M&A process is comprised of three overarching, integrated phases: Pre-Deal,

Deal and Post-Deal

Pre-Deal Phase: Key Activities

Pre-Deal Phase: Target Screening

Deal Phase: Key Activities

Deal Phase: Valuation

Deal Phase: Due Diligence

Deal Phase: Deal Structuring/Financing

Post-Deal Phase: Key Activities

Leading companies employ continual communication, emphasize speed, address
cultural issues and record all acquired mergers and acquisition knowledge
How will an M&A deal influence BS and IS(consolidated)?

Ace real M&A interview questions

• What is control premium? How do you value control premium?
• What are the reasons behind M&A transactions?
• Who will pay more for a company: strategic buyers or financial buyers?
• What is a hostile tender offer?
• Accretive vs. dilutive mergers (P/E1>P/E2, accretive or dilutive? Common
reasons for accretion/dilution?)
• Describe a recent M&A transaction. Does it make sense?
• Can you name two companies that you think should merge?
• Company A is considering acquiring Company B. Company A’s P/E multiple
is 55x, whereas Company B’s P/E multiple is 30x. After A acquires B, will pro
forma EPS rise, fall, or stay the same?
• If Company A buys Company B, what will the balance sheet of the combined
company look like when A acquires <20% / 20%-50% / >50%?