Description
Book SynopsisA comprehensive look at the world of leveraged buyouts The private equity industry has grown dramatically over the past twenty years. Such investing requires a strong technical know-how in order to turn private investments into successful enterprises.
Trade Review“Pignataro’s step-by-step approach is ideal for anyone trying to learn or hone the analytical skills necessary to model the basic viability of an LBO, from the point of view of the company as well as the investor. He explains valuational concepts and how to capture them in Excel spreadsheets, the latter described down to the level of individual keystrokes…. Leveraged Buyouts is a self-contained course in rudimentary financial modeling (and a crash course in Excel as well). It’s a perfect read for anyone wanting to enter the world of investment banking or private equity.”
—Investing.com
Table of ContentsPreface xi
The Heinz Case Study xii
How This Book Is Structured xiii
Part One Leveraged Buyout Overview 1
Chapter 1 Leveraged Buyout Theory 3
Cash Availability, Interest, and Debt Pay-Down 3
Operation Improvements 4
Multiple Expansion 4
What Makes Good Leveraged Buyout? 4
Exit Opportunities 5
Is Heinz a Leveraged Buyout? 5
Chapter 2 What Is Value? 7
Book Value 7
Market Value 7
Enterprise Value 8
Multiples 12
Three Core Methods of Valuation 14
Chapter 3 Leveraged Buyout Analysis 19
Purchase Price 19
Sources and Uses of Funds 22
IRR Analysis 33
Part Two Leveraged Buyout Full-Scale Model 49
Chapter 4 Assumptions 51
Purchase Price 57
Sources of Funds 63
Uses of Funds 69
Chapter 5 The Income Statement 75
Revenue 76
Cost of Goods Sold 76
Operating Expenses 77
Other Income 78
Depreciation and Amortization 80
Interest 80
Taxes 81
Nonrecurring and Extraordinary Items 82
Distributions 82
Shares 83
Heinz Income Statement 84
Last Twelve Months (LTM) 108
Income Statement—Projections 116
Chapter 6 The Cash Flow Statement 133
Cash Flow from Operating Activities 133
Cash Flow from Investing Activities 137
Cash Flow from Financing Activities 137
Financial Statement Flows Example 138
Heinz Cash Flow Statement 144
Heinz Last Twelve Months (LTM) Cash Flow 154
Cash Flow Statement Projections 160
Chapter 7 The Balance Sheet 179
Assets 179
Liabilities 182
Heinz Balance Sheet 184
Chapter 8 Balance Sheet Adjustments 199
Goodwill 200
Heinz Balance Sheet Adjustments 208
Chapter 9 Depreciation Schedule 221
Straight-Line Depreciation 222
Accelerated Depreciation 222
Deferred Taxes 227
Projecting Depreciation 231
Projecting Amortization 241
Projecting Deferred Taxes 244
Chapter 10 Working Capital 247
Asset 247
Liability 247
Operating Working Capital 248
Heinz’s Operating Working Capital 251
Projecting Operating Working Capital 262
Operating Working Capital and the Cash Flow Statement 271
Chapter 11 Balance Sheet Projections 279
Cash Flow Drives Balance Sheet versus Balance
Sheet Drives Cash Flow 283
Balancing an Unbalanced Balance Sheet 301
Chapter 12 Debt Schedule and Circular References 309
Debt Schedule Structure 309
Modeling the Debt Schedule 310
Circular References 329
Automatic Debt Pay-Downs 337
Basic Switches 339
Finalizing the Model 339
Chapter 13 Leveraged Buyout Returns 351
Exit Value 351
Returns to 3G Capital 355
Multiple Expansion 361
Debt Pay-Down 364
Conclusion 364
Part Three Advanced Leveraged Buyout Techniques 365
Chapter 14 Accelerated Depreciation 367
MACRS 367
Accelerated versus Straight-Line Depreciation 372
Chapter 15 Preferred Securities, Dividends, and Returns to Berkshire Hathaway 377
Preferred Securities 377
Preferred Dividends 378
Returns to Berkshire Hathaway 388
Chapter 16 Debt Covenant Ratios, and Debt Fee Amortization 395
Coverage Ratios 395
Leverage Ratios 397
Debt Fee Capitalization and Amortization 399
Chapter 17 Paid-in-Kind Securities 409
Apendixes
Appendix 1: Model Quick Steps 417
Appendix 2: Financial Statement Flows 419
Income Statement to Cash Flow 419
Cash Flow to Balance Sheet 420
Appendix 3: Excel Hot Keys 421
About the Companion Website 423
About the Author 425
Index 427
