Alumnus O’Brien Serves as Finance Seminar Speaker

Posted on 4/15/2019 2:50:46 PM

On April 8, 2019, Christopher O’Brien ’15 came into Daniel Lawson’s Finance Seminar class (FIN422).

O’Brien 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 (SMIP).

Christopher O'BrienIn 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