Leveraged Buyouts: A Practical Guide to Investment Banking and Private Equity, + Website

PART Three

Advanced Leveraged Buyout Techniques

In this third part of the book, we focus on several advanced structures and further detail in the Heinz case. As this is a live case, the data are always changing. Newer proxy reports will be posted upon transaction close containing more explicit detail than what we have been given in the preliminary proxy. Additional adjustments to the levels of debt raised, the purchase price, or adjustments to line items on the balance sheet can change for example. Rest assured, however, the major concepts will not change, and these adjustments will not be crucial to understanding leveraged buyout mechanics.

To further your LBO skill set, Part Three steps through the second method of accelerating depreciation, and employs a switch to adjust between the two common methods of depreciation–straight-line and accelerated.

We will also model out preferred securities and dividends as adjustable whether they are paid out when incurred or deferred. This will help us assess the returns to Berkshire Hathaway.

Finally, we will discuss advanced debt structures, including paid-in-kind (PIK) securities, and we will learn how to handle the amortization of debt fees, which may be of benefit for those looking for more complex analyses.

Note, if you are matching numbers in your model with the book, we are using the original version of the model with 0.4 percent revenue growth, 61.7 percent cost of goods sold (COGS) as a percentage of revenue, and the 14.4x EV/EBITDA ...