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The LBO Valuation Model operates on your five-year financial forecast. The model's purpose is to estimate the current value of your business to a "financial buyer", based on your businesses' forecasted financial performance. Your already-completed five-year financial forecast, plus two assumptions, is all that is necessary to create your first draft of a comprehensive LBO valuation of your business.
From a processing standpoint the LBO model makes a copy of your already completed five-year forecast and uses that copy (and any changes you make to it) for projecting future operating results. As such, your original forecast is preserved.
The LBO Valuation Model analyzes the value of your business from the point of view of a "financial buyer" who owns no other businesses in your industry and, therefore, expects all of its investment return to result solely from the future operations of the business. The LBO Valuation Model assumes that the buyer has investigated your business and operating plan and believes your business will achieve the financial results you have forecasted.
From a timing standpoint, the LBO Valuation Model assumes that the financial buyer intends to purchase your business at the beginning of year two (2) of your five-year forecast; and intends to own your business for the ensuing four (4) years, and then sell the business.
In order to generalize the analysis across a potentially infinite range of "deal" attributes, the model assumes the financial buyer is buying only the assets of your business and assuming none of its liabilities. Therefore, the seller of the business (i.e., you) needs to payoff all of the liabilities of the business (and in all likelihood, the income tax owed as a result of the gain realized on the sale of the assets) from purchase price paid to you by the financial buyer.
The output of the LBO Valuation Model consists of:
Business Valuation Summary.
primary financial statements - annual income statements, balance sheets and cash flow statements - showing the financial performance of the business prior to and after the purchase by the financial buyer.
several pages of documentation detailing the key assumptions underlying the valuation, and actual and forecasted financial ratio data and statistics. You may change any or all of the first draft assumptions, including your five-year forecast, to see how the changes impact LBO valuation of the business.
Click on the link below to access a sample of a LBO valuation case.
On the sample valuation case menu, click on the HTML buttons to review samples of the content associated with this model.
Both HTML and PDF (presentation quality) renderings of these and other pages of this model are provided with the member-version of this model.
Contact tgf@corpfin.net for details concerning how Corpfin.Net can help you interpret and fine-tune the LBO valuation of your business.