Mini Model Walkthrough

Question 1

• What is the purpose of a mini model and at what stage is it normally applied?

Answer 1

o Pre IOI stage. It allows to calc indicative returns that will show whether we should proceed to an IOI using CIM information (management case)

Question 2

• Where does entry EBITDA multiple comes from?

Answer 2

o Depends on industry and growth profile. Can get an indication from bankers/comps

Question 3

• What does cash free debt free means?

Answer 3

o As buyers we are only concerned with the enterprise value. The resulting equity value is for the sellers to focus on

Question 4

• What do we mean by amort%?

Answer 4

o The amount of remaining principal that will be paid in that year

Question 5

• What do we mean by sweep %

Answer 5

o Amount of excess cash that must be paid on top of mandatory amort amount

Question 6

• Till what line in Income statement do we usually take managements projections in the income statement in a mini model and why?

Answer 6

o EBITDA/EBIT because we are about to lever up the capital structure which impacts resulting interest expense compared to managements case

Question 7

• What do we mean by a revolver?

Answer 7

o If cash generated from operations does not cover capex and mandatory debt repayments we tap into the revolver. It is an emergency back up facility.

Question 8

• What is sweet equity?

Answer 8

o Management share of incremental (Newly created) equity value appreciation after a deal is done
o (Final Equity value – Initial Equity put in) * Management Option Pool

Question 9

• What is the rollover concept?

Answer 9

o Management roll equity into transaction so PE sponsor pays less

Question 10

• What is the amortisation of debt based on in an LBO?

Answer 10

o The initial PRINCIPAL amount. The yearly amort expenses however cannot exceed the remaining principal due