Paul Pignataro, the founder and CEO of the New York School of Finance, recently wrote Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity. He has now followed that work up with another “practical guide to investment banking and private equity”: Leveraged Buyouts (Wiley, 2014). Earlier he used Walmart as his case study. This book is a detailed case study of the Berkshire Hathaway/3G Capital $28 billion buyout of Heinz.
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.
A full-scale LBO model will include the assumptions underlying the proposed purchase, the company’s income statement, cash flow statement, balance sheet, balance sheet adjustments, depreciation schedule, working capital, balance sheet projections, debt schedule, and projected LBO returns.
Pignataro also takes the reader through advanced leveraged buyout techniques such as accelerated depreciation, preferred securities and dividends, debt covenant ratios and debt fee amortization, and paid-in-kind securities.
The book has a companion website which contains models on Heinz for download, chapter questions and answers, and a second practice LBO model.
All in all, 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.