A lot of people visit this blog and my website Corpfin.Net searching for information about
leverage buyout (LBO) models, private equity models, and business valuation
mechanics. Both sites provide discussions
of those topics and free access to easy- to- use, cloud-based financial models
with which to do those analyses.
Unfortunately, many visitors move on from my sites without
actually trying the models. In my mind,
reading about financial analysis techniques without actually doing an analysis is
about as effective a learning method as reading a golf instruction book and
never swinging a club. In finance, like
many other endeavors, the nuances and sensitivities of the game are best realized
and understood through execution.
One of the issues that may be at work for those not trying our
models is the lack of a real-world corporate finance deal to analyze and
compare one’s results to. Accounting
educators have for years addressed this issue by having students do practice
sets (keeping the books for a fictional business through the completion of a one-month
or longer accounting cycle) where the correct answers are known and the
students mastery of the subject matter can be evaluated. Unfortunately, as far as I know, no such
curriculum is in place for financial forecasting and business valuation skills
building.
Which brings me to the point of this post:
In the past I was involved as an advisor in the sale
of small, privately owned insurance industry claims processing company. After assisting the client in developing a
five-year forecast for his firm, I used the Corpfin.Net
LBO model to advise the client on pricing.
The client took my recommendations and (happily) realized that selling
price.
For those who would like to test their LBO analysis skills
against an actual result, I propose that you sign-up for a free account on Corpfin.Net and e-mail me at tgf@corpfin.net, asking me to copy my
insurance industry client’s forecast to your member directory (the forecast is
titled “LBO Valuation Skills”). Using
that forecast, create an LBO valuation (about eight assumptions) and let me
know the selling price you come up with.
If you would like a critique of your work, let me know and we will
arrange to get together (for free) either on line or through e-mail to go
through the details.
I am thinking about recognizing, in some way, those who
either do a good job initially in estimating the selling price, or who
demonstrate a basic understanding of the subject matter after a critique. Please let me know if this idea of
recognizing basic LBO valuation skills is appealing to you.
