1. Introducing the ToolCo Case Study

Subtitles Enabled

Sign up for a free trial to access more free content.

Free trial

Advanced LBO Modeling Part 1

12 lessons , 3 exercises

Preview Course


ToolCo operates a chain of hardware stores in the US and has been identified by Dealer-Partners as a potential takeover target. In this lesson, we learn more about this case study and how this course differs from the previous modelling courses you may have completed


Overview of ToolCo Case Study

  • A publicly listed chain of hardware stores in the US
  • Stagnant growth and falling profits over the past 4 years
  • Dealer Partners (DP) is seeking to buy the company for ~$800m
  • Task: Build a financial model to help DP make a decision

What We Cover in this Case Study

  • A full three-statement projection of the income statement, balance sheet and statement of cash flows
  • An introduction to new concepts such as capital leases, impairments and goodwill
  • Tools and techniques that provide greater model flexibility for the user


Welcome to our course on advanced leveraged buyouts. The case study in this course is a company called ToolCo which is a publicly listed chain of hardware stores based in the US.

Over the past couple of years, ToolCo has had stagnant revenue growth and falling profits. This has garnered the interest of Dealer Partners, a private equity firm that is seeking to buy the company for around 800 million dollars. In this course, our task will be to build a financial model to help Dealer Partners make a final decision on purchasing ToolCo. In this course, we're going to create a more detailed valuation model than what we've done in previous courses. For starters, we'll be doing a full, three-statement projection. This includes the balance sheet, statement of cash flows and income statement. Next, we'll introduce some new concepts such as capital leases, impairments and goodwill. We will also create greater model flexibility, enabling Dealer Partners to generate more insights from our analysis and hopefully make a better decision. And lastly, we'll perform much deeper performance analysis of the target once our valuation model and three-statement projections are complete. By the end of this course, you will have a very strong grounding in all critical aspects of building valuation models, and in particular, a detailed understanding of the various debt instruments that are prevalent in leveraged buyout transactions. Before we dive into the model in Excel, I need to mention a couple of points. In this course, I'm going to focus primarily on the new concepts that we have not seen before and run quite quickly through some of the simple tasks that I've performed in the previous valuation courses, such as building the income statement projection. Next, this model is much larger than the previous models that we've created, and some elements can be quite difficult to parse. As a consequence, I recommend examining the Excel files outside of the video lessons in your own time to make sure that you can track how each formula and each part of the model interacts. Lastly, if you are unfamiliar with some of the accounting concepts shown in any of these lessons, be sure to look in the show notes where I will include links to various external resources that go into more detail on many of these accounting terms, such as goodwill, amortization and debt refinancing. With that now out of the way, let's dive into the case. I've pulled some historic numbers related to ToolCo including their revenue for each year up to 2016. We can see that it's grown at a very slow rate over these four years. When we look at earning before interest, tax, depreciation and amortization, we can see that profits are actually falling. To turn this company around, Dealer Partners will need to increase revenue and also control costs so that the EBITDA increases as well. Let's start our work in the next lesson, the transaction assumptions for this particular deal.

Advanced LBO Modeling Part 1