Walk Me Through An LBO - Investment Banking Interview Question
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- čas přidán 2. 07. 2024
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In this video, we walk through the question, 'Walk Me Through an LBO', which is one of the most common LBO-related questions for Investment Banking and Private Equity interviews. The trick with answering this question is having an organized, succinct answer which we provide for you in the video. We provide a simple, 6-step framework to help you master this question and land the job.
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Learn how to answer interview questions from a former Investment Banking (UBS LA), Private Equity (Golden Gate Capital + HIG Capital) and Investment Management ($200B Mutual Fund / $2B Hedge Fund) practitioner…and Adjunct Professor in Columbia Business School's Value Investing Program who has trained thousands of current IB/PE/HF/MF professionals.
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Hope you find it helpful!
Contents:
00:00 - Intro
00:08 - Video Context & Overview
00:30 - How to Answer This Question / Six Step
00:56 - Walk Me Through an LBO Step 1: The Purchase
01:37 - Walk Me Through an LBO Step 2: Debt & Equity Financing
02:08 - Walk Me Through an LBO Step 3: Collecting Cash Flow to Pay Down Debt
02:36 - Walk Me Through an LBO Step 4: Selling the Business
03:10 - Walk Me Through an LBO Step 5: Calculating Sale Proceeds
03:52 - Walk Me Through an LBO Step 6: Calculating Your Return
04:23 - Recap / How to Answer The Question
05:17 - Wrap-Up
Hope this is helpful and let us know if you have any questions in the comment section below.
#InvestmentBanking #LBO #LeverageBuyout #PrivateEquity #HedgeFunds #FinanceInterviews #Valuation #EBITDA #Multiple
Mike, this is the best explanation of an LBO I’ve ever seen. Thank you!
Thank you so much! This made it all so clear!
you're the only one that makes it so clear, thank you so much !!
Glad you found it helpful! Btw, we have an even deeper dive article on this here: finance-able.com/walk-me-through-an-lbo/
Very helpful video! I learned so much 😊
You are a god send with explaining this stuff! Thank you man!
Glad you found it helpful Youssef! We have even more free deep-dive content here: finance-able.com/analyst-starter-kit/
keep it up! great vid
wow! That was so precise and clear! Thank you.
Glad you found it helpful!
your awesome man
Very well simplified. Thank you!
Glad it was helpful!
These videos are incredible! Makes it very easy to understand.
We worked really hard to make these concepts simple. Glad you found it helpful!
Explained so well, thank you!
Glad it was helpful!
Fantastic explanation
Very excited to launch our latest video which covers one of the most common LBO-related questions for Investment Banking and Private Equity interviews. Let us know if you have any questions!
Really clear explanation and very helpful
Thanks so much @nathanheide8937!
Great structure!
Thank you!
Nice video!
Thnaks Natalie!
Im confused with ine thing. The 100 dollars left after devtors is paid doesnt all go to the owner right? The firms or individuals that purchased equity and essentially fascilitated the $50 equity financing would recieve their share if the return, correct? So owner would recieve their share of profit. Or by owner are yiu reffering to all owners, i.e all those with equity in the business
Think of an LBO like a mortgage!
Can you please tell me how you calculated the annualized rate of return?
You take the (ending value - beginning value)/beginning value to get the return rate. Then you use the formula ((1 + return rate) ^ (1 / number of years)) - 1. In this case it would be:
return rate = (100 - 50) / 50 = 1
annualized rate of return = ((1 + 1) ^ (1 / 5)) - 1 = 0.148 which is approximately 15%
Hope that helps
Need a more detailed explanation just like the DCF video.
We have both a DCF video and this LBO video. It’s intentionally tight in the explanation here. I wouldn’t go any deeper in an interview as a starting point, there’s very little upside in that.
Great video and well explained thank you! What happens to the remaining $30 of debt when you sell? Will it just stay as debt in the firm when selling or must it be repaid prior?
Hey Tudor, think of the Debt as being like a mortgage on a house. When you sell your house, if you have a mortgage, you have to pay it off. In the same exact way....in an LBO, the lenders who originally lent to you will require you to repay your outstanding Debt. Does that make sense?
How much more in depth would you have to go during an interview?
For the first answer to this question in an interview…I wouldn’t go any deeper than this…you want to start at a high level and then let them pull you into the weeds. After that though, they can take this to any level of depth they choose.
If you want to be sure to answer everything…your best bet is to learn how to build a full LBO model front to back
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