Professional Documents
Culture Documents
James OGara Matteo Luoni Matteo Masi Brandon Parry Ryan Brewer
Deal Considerations
Entry Valuation and deal approach Leverage and structuring: what are current market conditions? Management incentives Portfolio Value creation opportunities: whats the plan? Exit: sale vs. IPO, strategic buyer vs. financial, exit multiple
Sources
Key Steps
Public data: 10-K, etc. Capital IQ for financials Analyst reports Investment Thesis
S&Ps LCD for leverage market (on facebook) Company info board, etc.
Your fundamental bet about the industry and the companys ability to capture value in it. It underpins your entire investment recommendation. Make it clear!
2
Financial Modeling
Boiling your investment thesis down to the numbers
Revenue Build Choose an approach: top-down or bottom-up Should match your industry view, incorporating key variables to examine how they impact it Flexible and easy to understand/walk someone through Be as granular as possible on division/product specific revenues Cost Assumptions Understand fixed vs. variable costs and how flexible the cost structure is Think about what impacts margins: dont just hold them flat! Be careful about assuming significant margin improvements Cash Flow items Make sure your capex assumptions match both your revenue growth and D&A sanity check Examine working capital accounts for seasonality use minimum cash balance to reflect it Accurately reflect below the line, cash expenses: management fee, restructuring charges, etc. At minimum, base and downside cases in the model Base is your best guess, downside is not doomsday but reflects a realistic, bearish scenario Upside case may also be useful, but careful about too much optimism Management Case projections from the company are often used as this Sensitize returns around the key variables (risks) that impact your investment outcome Not just entry/exit multiples, or year of exit (lazy modeling!) Exit multiple is typically a huge driver of returns, but so are operational/industry outcomes Include at least one non-deal specific driver: company growth, margins, industry outcomes
Basic Approach
Cases
Sensitivity Analysis