On April 8, 2019, Christopher O’Brien ’15 came into Daniel Lawson’s Finance Seminar class (FIN422).
graduated from IUP in 2015 with a degree in finance with an economics minor. He joined Citizens Commercial Banking as a Leveraged Finance Associate
in 2016. While at IUP, O’Brien was a part of one of the fist management
teams when Daniel Lawson took over the Student Managed Investment Portfolio
In his presentation, O’Brien explained
how the leveraged portion of Citizens business line has to do with companies
that have a debt/EBITDA (earnings before interest, taxes, depreciation, and
amortization) ratio greater than 3.0x. He then explained some of the key
players in his market, including private equity (PE) groups and investment banks (IBs) such as the Carlyle Group, Apollo Global Management, Blackstone,
etc. He explained how these funds are usually set up, how they raise capital,
and what they look for in their investments.
A main aspect of the presentation was explaining the
advantages of the leveraged buyout process and how taking on debt for a company
will increase the internal rate of return. He alluded the LBO process to buying
a house—the house doesn’t have an inherent value until it is valued by an
appraiser or is being actively purchased by an outside buyer.
O’Brien had prepared a short LBO (leveraged buyout)
model, commonly referred to as a “Paper LBO,” as IB and PE groups are known
to ask potential hires to prepare an LBO model on a piece of paper during the
interview process. O’Brien gave a simple set of parameters and assumptions, such as EBITDA growth, exit timeframe, etc. From there he walked the class
through the first portion of the LBO—the sources and uses. In this step, the
class identified the purchase price for the company, which is based on a
multiple of EBITDA then filled out the sources of capital (i.e., a term loan and
an equity investment) and what they were to be put towards—buying the company
and satisfying transaction fees. The next step in the process is to fill out
the debt schedule to see how much will be owed by the exit date. Next, the
class calculated the internal rate of return based on the equity value growth
during the given timeframe. Lastly, the class modeled out the performance of
the business to see if the debt schedule was affordable to the company. O’Brien explained how PE is a balancing act of loading the company with debt
without crippling it.
Thank you, Christopher O’Brien, for sharing your knowledge and
experience with our students!
Eberly College of Business and Information Technology