Courses / Buyout

Buyout

30 Lessons

A buyout is the purchase of all or substantially all of a company and obtaining control over it through the process. Buyouts are particularly attractive to private equity investors because they can drive organizational and operational change through the business once they control it. Prior to this course, we looked at investing from the lens of purchasing a small piece of a company. Beginning with this course, we’ll learn to also look at investing from the perspective of purchasing the entire company. By the end of this course, you’ll understand how buyouts work and how to build financial models for them in Excel.

Key Takeaways:

  • How buyout works
  • Sources and uses
  • Modeling a buyout in Excel

Lessons

1. What is a Buyout?

4:04

A buyout is the acquisition of all or substantially all of a company's equity to become the controlling shareholder.

2. Who Does Buyouts?

2:03

Both institutional investors and retail investors can execute buyouts.

3. How Equity Investors Make Money in a Buyout

2:36

Buying the entire ownership can create significant investment gains if the company generates meaningful LFCF.

4. How a Buyout Financial Model Works

2:49

In this lesson, we'll learn the logic flow behind a buyout financial model and understand conceptually how to model it.

5. Entity Structure

3:35

Entity structure is critical to mitigating unnecessary risks associated with owning an entire company.

6. HBB Case Study: Situation Overview

2:25

In this video, we'll go over the Hamilton Beach Brands case study that we'll utilize in this course to learn about buyouts.

7. Offer Premium

3:28

Acquirer needs to offer a purchase price above the market price to entice current stockholders to sell.

8. Entry Multiple

1:54

Entry Multiple is the valuation multiple that investors pay to purchase the company.

9. HBB Case Study: Setting Valuation

8:43

In this lesson, we'll model the entry valuation for our illustrative buyout of Hamilton Beach Brands.

10. Sources & Uses

2:14

Sources & Uses (S&U) tells us where the investor's capital is coming from and how the capital will be spent.

11. Equity Purchase Price

1:08

Equity Purchase Price is the price investors need to pay to purchase the ownership stake in the company.

12. Debt Repayment

3:12

Investors in a buyout sometimes need to repay the target company's existing debt outstanding as part of the transaction.

13. Debt Rollover

2:41

Investors in a buyout sometimes don't need to repay the target company's existing debt outstanding as part of the transaction.

14. Minimum Cash Balance

2:43

Most sizable companies require a minimum amount of liquidity to keep the business operations running.

15. Transaction Fees

2:01

The buyout of companies will usually result in one-time transaction fees to facilitate the investment.

16. Existing Cash Balance

2:26

Existing Cash Balance is a term referring to a company's existing Cash & Cash Equivalents balance.

17. Borrowing Debt

2:21

Investors can use debt borrowings to fund their buyout. We'll explore this topic in greater detail in the LBO course.

18. Equity Check

2:17

Equity Check is investors' own money used to fund the buyout. In general, investors want to use as little of their own money as possible.

19. HBB Case Study: Sources & Uses

6:01

In this lesson, we'll model the Sources & Uses section for our illustrative buyout of Hamilton Beach Brands.

20. Projecting LFCF Post-Investment

2:26

We'll review how to project Levered Free Cash Flow and why it's important in the context of a buyout.

21. HBB Case Study: Projecting LFCF

5:23

In this lesson, we'll model the projected earnings and cash flow for our illustrative buyout of Hamilton Beach Brands.

22. HBB Case Study: Capital Structure

2:58

In this lesson, we'll model the projected cash and debt balances for our illustrative buyout of Hamilton Beach Brands.

23. Exit via Sale

3:06

Many institutional investors acquire businesses with the intention to sell them in the future.

24. Exit Multiple

2:01

Exit Multiple is the valuation multiple at which the investors can expect to sell their stakes in the company to future buyers.

25. Multiple Expansion

2:58

Multiple Expansion is a value-creative phenomenon where the investors sell their investments at a higher multiple than what they paid.

26. Multiple Contraction

2:23

Multiple Contraction is a value-destructive phenomenon where the investors sell their investments at a lower multiple than what they paid.

27. Standard Returns Analysis

3:46

Returns analysis entails analyzing the cash-on-cash multiple, annualized return percentage, and monetary amount of profits gained.

28. HBB Case Study: Returns Profile

3:41

In this lesson, we'll model the returns profile (MOIC, IRR, Equity Gains) for our illustrative buyout of Hamilton Beach Brands.

29. Cost of Capital in Buyout

4:14

The purchase of entire companies create incremental risks. As a result, investors in a buyout should require incremental returns.

30. Connecting Dots

2:32

Let's connect the dots and see how the course is relevant to what we learned and what we'll learn in upcoming courses.