What you’ll learn

12 short chapters. How a buyout works, from enterprise value and sources and uses to IRR, and how due diligence catches the numbers a seller dresses up. Two acts. One chapter in every act is free.

Act I

The Buyout

01Enterprise value vs equity valueFREEHow a company’s price is quoted for the whole business, enterprise value, and why the shareholders get less: equity value, net debt and cash-free, debt-free deals.02Sources and uses of fundsHow a buyout is paid for: the sources and uses table, term loans, senior notes and sponsor equity, the leverage multiple, and who gets repaid first when it fails.03LBO returns: IRR and MOICWhere buyout returns come from: EBITDA growth, debt paydown and the exit multiple. MOIC and IRR worked out, and why debt lifts the return and the risk together.04Accretion dilution analysisWhy a strategic buyer checks its EPS first: paying in stock or in cash, pro forma EPS, the P/E rule for all-stock deals, and why accretive isn’t the same as a good deal.05M&A synergies and goodwillCost and revenue synergies, how the premium over fair value becomes goodwill, why US GAAP tests goodwill for impairment instead of amortizing it, and what a write-down means.★Leveraged buyout: a worked caseCase: price Biscuit Barrel, balance sources and uses, run the five-year plan to the exit, then work out MOIC and IRR, with a lower exit multiple and with no debt at all.

Act II

Due Diligence

06Quality of earnings in due diligenceFREEHow a quality-of-earnings report tests a seller’s adjusted EBITDA: which add-backs hold (one-offs, owner pay) and which don’t (recurring “restructuring”, pro forma price rises).07Revenue recognition fraudHow sales get pulled into the wrong year with bill-and-hold and channel stuffing, why rising DSO gives it away, and why reversing them costs EBITDA the margin, not the revenue.08Capitalized expenses fraudHow booking routine repairs as capex lifts EBITDA by the full cost, why free cash flow sees through it, and how invoices and capex against depreciation expose it.09Off-balance-sheet liabilitiesWhy invoices factored with recourse are a loan, which other debt-like items a buyer adds to net debt, and why every hidden dollar of debt comes off the price one for one.10Cash fraud and bank confirmationsWhy cash is checked with bank confirmations sent by the auditor, not the client, why trapped or pledged cash doesn’t reduce net debt, and how unconfirmed cash is priced at zero.★Due diligence: repricing a buyoutCase: rebuild EBITDA and net debt from the findings, re-price the buyout at the same multiple, rebuild sources and uses, and see what overpaying would have done to the return.

Glossary of every term in the course →

More courses

Read a business on balancesheet.art → Balance sheets, earnings reports and how to tell a good investment from a bad one.

Read the chain on regardedtrading.art → Calls, puts, the Greeks, expiration day and the short side. For people who already trade them.

Read the curve on basispoints.art → Coupons, yields, duration, credit spreads and the yield curve, how a bank full of safe bonds can still fail, and how the next one hedges.