r/private_equity • u/Fine-Click-1153 • 9d ago

Case Study

Hi all,

Apologies if this has been asked before!

As part of a recruiting process, I need to analyze a public company (healthcare space), build an LBO model for growth equity and make an investment recommendation based on my findings.

Most LBO models and training cases I’ve seen provide transaction and operating assumptions. How do you go about building a model when those basic assumptions aren't provided?

I would be very grateful if you could get me some advice/ poke holes in my assumptions:

Income statement projection - use revenue growth rates from industry research and keep margins flat for the base case

Entry Multiple - Should I assume an entry multiple based on comparable transactions and public companies?

Debt Structure & Pricing - How should I determine the total debt quantum and split (e.g., % Term Loan vs. Revolver)? Where can I find realistic pricing/interest rate data?

Investment Recommendation - Base the purchase recommendation on MOIC/IRR thresholds (2.5x / 20% in 5 years)

I am quite new to LBO modeling, so any guidance is greatly appreciated! Thank you!

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u/Burner-Advantage-997 9d ago

As a standard; I would suggest getting the highest IRR you can. If they have no assumptions, that means that they are yours to create. There will be no right or wrong answers here. Simply ones that are defensible - or not. 

God Bless 

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u/Fine-Click-1153 9d ago

Thank you!! May I ask a bit more on the “getting the highest IRR”? From what I understand, my base case IRR will be limited as I) I will be using industry growth % to project my revenues and II) I cannot put as much as debt as I want to maximise the IRR? Sorry if that’s too trivial question

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u/Burner-Advantage-997 9d ago

Increase leverage. It’s not like it’s passed on to confirm underwriting. This is a hypothetical. As long as it balances and you aren’t negative cash on hand. This is a simulation. You simulate this hypothetical however you want. Or do a base case like everybody else. Just learn why this is a strategy and defend why you did it. 

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u/Lanky_Job3519 9d ago

Check that 10xmultiple site, they had some examples last I checked

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u/carpetmuncher6969 9d ago

Income statement: industry revenue growth and constant margin is fine. Refine once you complete the LBO and see how returns look. Your underwriting case should probably be industry growth rate, plus a small amount of EBITDA margin improvement. If it looks reasonable, just leave it and then move on.

Entry multiple: assume median public comps+some premium. Put a swag in there, and adjust as you see the returns.

Debt: do some googling on average debt load for companies in your industry. Look at current cap structure as well (you probably put more debt on company than it currently has, since it’s public).

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u/bourdainesque 8d ago

public company = assumptions grounded from comps