So together, this is a substantial business, and arguably one that's too big for a traditional buyout.

PayPal is a public company, so this would be a take-private deal.

Yeah.

We've got information on PayPal as a public company, less information on Stripe, so I think a bit of a challenge for Claude this week.

We'll still put Fable to the test, Claude's most impressive model to date, and see how good of a job it does.

This is looking pretty good. And actually, it suggests that the numbers do work on a standalone, traditional LBO basis.

We've used very cautious leverage assumptions here, five times debt to EBITDA, which is lower than the actual proposed transaction, and you're still coming out with an IRR of about 22%.

What is the big deal that we're going to be looking at this week? So we have some really, really big, but admittedly high-level headlines on Stripe's proposed acquisition of PayPal this week.

Now, this is kind of an LBO, but also kind of not, in the sense that Stripe is partnering with Advent, obviously a big, well-known global private equity firm, to buy PayPal. So we are going to both talk about what this transaction means. We will prompt Claude again to see what kind of LBO model it gives us for this really indicative early transaction, and also talk about some of the areas in which we just need more information to really be able to analyze the equity returns here, because it's not necessarily as simple or as obvious as you might think.

Ooh, I'm so looking forward to this.

It's been a while since we've looked at a deal, hasn't it, Graham? It has.

Let's roll up our sleeves.

It has. Actually, I think the last one we looked at was GameStop's proposed acquisition of eBay.

This one feels a little bit more real and a little bit more deliverable.

We've got Advent involved. Stripe's obviously a really credible player.

They're growing like crazy, have been around for a while, big, private company.

This one feels like it actually has legs and that it's worth taking a look at today.

Amazing. And of course, PayPal is a public company, so this would be a take-private deal.

Yeah.

We've got information on PayPal as a public company, less information on Stripe, so I think a bit of a challenge for Claude this week.

Yeah. Let's see how it does. We'll still put Fable to the test, Claude's most impressive model to date, and see how good of a job it does.

I hope I'm not out of Fable credits.

I've been using it a lot in the last week, so if this just stops, we might have to switch and go back to Opus, just like the good old days. But we'll see how we go.

Okay. And that's crazy, isn't it? The good old days of Opus. Okay. Right.

Let's dive in. We'll get the prompt running, and then maybe we can flesh out a bit more detail about the deal itself.

Okay. So I've got Excel open. I've got the Claude interface open, and let's give it a prompt. So, like we were talking about the other week, I always like to start simple and see how well Claude does with a really simple prompt. I'll ask it to ask me some clarification questions as we go.

I'm just going to say, "Build a leverage buyout model for Stripe/Advent's proposed acquisition of PayPal. Ask me any clarification questions as you go." All right. I'm on auto mode on Fable 5.

Let's see how we go. Well, first, I see we've got Fable's first questions for us here. So let's see what it's asking.

All right. It's asking if we have a specific LBO template in mind, or should I build a standard structure, sources, uses, operating model, debt schedule, returns, sensitivities. Actually, that sounds good, so I'm going to hit Standard.

Should I pull PayPal's actual financials from SEC filings? Yep. Great.

How should we set the purchase price? Premium to market. Now, this is a P2P.

Usually, when we're talking LBOs, we're often looking at private companies, and we're often talking in EV to EBITDA multiple basis. But here I do want to change.

I want to set this as a premium to the public price.

Because as it stands now, Stripe/Advent made an offer that I want to say was almost a 30% premium to PayPal's closing share price, and that offer got initially rejected.

So we want an input that we can tinker with.

Absolutely. It was a $60.5 per share offer, and that's already been rejected, so usually the next step is an adjustment to that premium and an uplift in the offer price.

So once we build the model, we can return to it, tweak those assumptions, and see how that affects the outputs of the model.

This is not a standard private equity deal, and at least just given the numbers we have in the headlines in terms of the, say, headline leverage, it's really difficult, I think, to just attribute all that leverage to, say, PayPal. If we were looking at this on purely a standalone basis, I don't think we'd be looking at the same leverage number as an example.

But let's hit Standard and see where we go. Okay.

So Claude has come back with a series of initial assumptions just to have us run through. So we say, okay, pulling latest financials from SEC EDGAR.

Great. Assumptions tab. We're saying 30% premium to closing share price.

It says five times leverage split into term loan B and senior notes.

See sources and uses. Operating model, five-year down to free cash flow.

Debt schedule, mandatory amortization, cash flow, cash flow sweep. Okay.

Returns, exit EV, debt paydown, IRR, money multiple.

Sensitivities, five-by-five grids at multiple premium versus leverage. Okay.

Again, based on a really simple prompt, not perfect, but this feels like it's about in the right ballpark.

So I'm just going to say looks good.

Build it.

So Debs, let's have a chat about what makes this deal a little bit different.

Yeah. Let's talk about what makes this different, because I know we've touched previously on traditional LBOs, the use of leverage by private equity firms to go in, buy a company cheap, improve the business, sell it on at a profit, and that leverage effect magnifies their returns. And we've done a previous episode where we really worked through those mechanics. But your view, Graham, I know we spoke earlier, your view is that this is not a traditional LBO. So talk us through what makes it different, and is this the future for LBOs? Well, maybe. If we think about a traditional LBO, this is where a financial sponsor just goes and buys another company.

And it can be a P2P like we're looking at here.

Let's say if this was just Advent looking to buy PayPal, and they made an offer to PayPal shareholders saying, "We are going to pay this much of a premium over PayPal's current share price, and in exchange for that, we would like you to tender your PayPal shares to us." And then Advent would operate PayPal as a private company.

Of course, you can either do that or you can buy just a private company.

One thing that we've seen a lot in recent years, really the last decade, two decades really, in terms of private equity is, and we had a discussion a few weeks ago, a few months ago, around how private equity is getting, I think, a lot more competitive, and it's not enough just to buy a company, load it up with debt, sell it five years down the line for a financial return.

You actually have to know what you're doing and make real operational improvements.

And for that reason, one of the really common private equity plays we've seen in recent years has been the platform opportunity, where you have a private equity firm that buys a company, takes it private, uses that company as a platform through which to make bolt-on acquisitions, spend a bunch of CapEx, start up new operations, diversify, build, whatever the case may be, really transformationally changing the company that it buys.

This feels like some kind of hybrid approach, right? Because if Advent weren't involved, this would be just straight up corporate M&A where you've got one company buying another. Here you've got this situation where, and this is why I say we don't really have enough details to really know exactly what's happening behind the scenes here, but you have Stripe, this private company, which has got, I don't know enough about who the shareholders in Stripe today are, but I imagine you've got just a long roster of venture capital firms, private equity, private investors who've all put money in to support Stripe over the years.

It doesn't sound like Advent's not buying Stripe and PayPal.

Advent is partnering with Stripe to buy PayPal.

So Advent's going to inject equity, and that equity will be used to fund the equity portion of the LBO consideration for PayPal.

And they're obviously going to be getting some kind of equity ownership in Stripe/the combined group. And what I don't know is behind the scenes, how that splits, what the implied valuation for Stripe is, how much of the equity that Advent's taking as part of this transaction. But it does feel like this kind of hybrid approach where you've got private equity, really sees an opportunity to consolidate some of the big players in the financial services space, is making this investment into Stripe, and then they're doing it on this... This is almost like a JV in some ways.

Mm-hmm.

So I'm actually really curious to see what headlines come out in the next couple weeks, couple months as we learn a little bit more about this deal and learn a little bit more about what's actually working or learn a little bit more about what the relationship between Advent and Stripe looks like here.

And just to clarify, Graham, so what makes this different? A couple of the things that you've highlighted.

So first of all, this isn't like a platform type scale-up where it's the private equity firm using its portfolio businesses to kind of consolidate.

It's actually partnering with another private company, which albeit has already probably private backing from lots of private equity firms.

Yeah.

And then secondly, the scale, the relative scale of the business here.

This isn't just a small add-on. This is Stripe, which we don't have numbers for, but we know it's a large business, larger than PayPal.

And we're probably talking maybe twice, three times the size of PayPal.

So this is- Yeah ... two not dissimilar in size businesses being consolidated together. Whereas often with these platform businesses, you're going around buying much smaller ones, aren't you? Yeah, exactly. And you're right, this is a mega deal. I mean, Stripe, as the latest information we have, I think their last fundraising round valued them at about $160 billion of equity. We don't know much about Stripe's balance sheet, whether Stripe has much debt. So whether that $160 billion equity turns into something more than that in terms of enterprise value, or if Stripe has negligible net debt and we think enterprise value and equity value are basically the same.

PayPal on its own is already a pretty big business at, I want to say, the offer being made was just north of $50 billion equity value.

So together, this is a substantial business, and arguably one that's too big for a traditional buyout.

So how's Claude getting on with the prompts? It's still working through the prompts, isn't it? It's not waiting for any responses from us.

So while we're doing that, so you mentioned that this is kind of potentially the new style of private equity. Are there other deals that we've seen out there that kind of follow this approach, or is it a really pioneering new type of way of generating returns, partnering with a private company for this? Let me see. I don't know. In terms of these kind of mega deals, I mean, the last was, in air quotes, mega deal that we saw, that we talked about was Electronic Arts. Now, that was a little bit different in the sense that you had some private equity firms, you had some sovereign wealth, kind of partnering together to take EA private.

Mm-hmm.

There wasn't, as part of that acquisition, another acquisition target they were looking to buy. So I think the parallel here is just the, we'll call it the standard private equity kind of platform opportunity, buy and build, whatever you want to call it.

And again, this is such a common feature of the private equity market.

Let's check in with Claude. Where's it got to now? So is it waiting for a prompt from us? Let's see. Let's say checkpoint recap. All right.

We've got 28% offer, LTM revenue 33 billion, EBITDA 7 billion. We're talking PayPal.

This sounds about right given some of the research we were doing just before. We've got the financing structure is saying three times terminal and B, two times senior notes.

Let's see. Judgment call to confirm.

Okay, interesting. Judgment call to confirm.

I apply the $6 billion of PayPal's corporate cash and short-term investments toward the funding above a $3 billion min cash floor.

Now, we were talking about this before we hit record on the episode.

Usually in an LBO, what you do is you assume that you can use all the target's cash as part of your acquisition funding, at least as relates to a public LBO like this, because once you buy the equity value, you take control of everything and you own the cash, and usually you're going to keep some level of min cash in the business.

Yeah. So it's one of the challenges with payments companies or, yeah, big payment companies in general, is that some of the cash that they have is customer cash because they're holding cash on behalf to settle payments, and they tend to have a need for a certain level of operational cash above that. So the assumption that we usually make that cash is free and available for paying down debt is not quite the same.

And it kind of does make The calculations of things like enterprise value, that's the value of equity plus net debt- Yeah ... that's debt net of cash, a little bit more complex.

So you do need to make some judgments.

Now it looks like Claude is suggesting that they exclude customer cash, so customer funds are excluded, and they're going to include cash above a $3 billion minimum cash floor.

So actually, already making an assumption about the minimum cash requirements. So I think that's a pretty sensible starting point, and I'm happy to go with that.

Yeah, you made the point. It doesn't say we don't have the breakdown of what customer funds are in terms of what number that is.

Yeah.

But the point that it's highlighted that I actually think is quite helpful here because that's- Yeah ... a fairly specific aspect of this transaction.

So yeah, I'm saying looks good.

Continue. Let's go.

Okay. So sometimes we can take a sneaky peek at some of the assumptions and sources and uses. Do you want to try and have a look and see what it's done already? All right, so we've got inputs for share price, premium, got our equity value calculation.

This ties up with what we've seen in the news, and I've seen that $53 billion already.

Okay, we say cash equivalents, this term debt, short-term investments.

Okay, excess cash, this $6 billion.

EBITDA margin, CapEx. CapEx as a percentage of revenue.

I'm assuming this is what we're going to use to drive our forecast model, even though we haven't taken a look at it yet. And then acquisition financing.

Okay, the structure that we've already talked about, five times total leverage, three times term loan B, two times senior notes.

Some percentage, this rate on the term loan B saying 1% amortization per year, 8.5% interest on the senior notes. We're saying 100% cash sweep of excess free cash flow to term loan B because we're going to pay the term loan B, of course, before any of the senior notes, and I suspect we're not going to pay off the whole term loan B in this five-year forecast period.

20% tax rate, five-year hold period.

Entry enterprise value 7.8 times EV to LTM EBITDA. We've been talking a lot last couple of months about the AI valuations, about a lot of the IPOs that are coming, about SpaceX that's like 300 times EBITDA, which admittedly are crazy numbers, but 7.8 times valuation multiple here seems pretty low. When I was financing a lot of mid-market private equity deals, we're usually talking an acquisition multiple somewhere between 10 and 15 times, depending on cash conversion, how fast we expected these companies to grow. This is pretty low, especially if we're saying PayPal is a fairly cash generative business.

Yeah, it is. I don't have the exact numbers to hand, but honestly, PayPal's share price has been really struggling in recent years.

It had such a great hold of the payments market for a long time, but obviously, that position's been challenged by competitors, presumably including Stripe.

And yeah, it's looking pretty cheap these days, so that does make it very attractive as a target. But yeah, I think we were both shocked by high single-digit multiple for a tech company. That's basically what PayPal is.

But yeah, it definitely reflects the fact that it's been under pressure.

We should stress that this deal, this offer has been rejected.

It's been rejected by the board. Also, one of the major shareholders has come out and said this is well below what the business is worth.

I think they've said that the shares are worth at least $70 each, and they're only being offered $60.5 at the moment.

So yeah, it looks cheap, but it has been rejected.

In terms of rules of thumb, just while we're waiting for the rest of the build, some of the metrics that I've been reading about, they don't look too scary in terms of this particular deal. The total leverage or the total debt package, about $50 billion with financing agreed by JP Morgan and Morgan Stanley. That puts them on about a 6.7 times debt to EBITDA multiple, which sounds high, but as you said, cash generative target.

And a mix of debt and equity, so that's about 75% debt, 25% equity.

Why do you think this is being structured as this kind of strategic, almost joint arrangement between Stripe and private equity when the numbers actually don't look scary just in terms of a take-private LBO on its own? Well, I'm going to disagree with one thing you've said there in terms of this not looking scary on its own, because if we really believe the enterprise value is $54, $55 billion here, let's say it's a little bit more than that. If we're talking $50 billion of committed financing, then we're really saying the LTV or loan to value. This is something we look at a lot in this kind of world. Basically to say, of the enterprise value, how are we breaking down that mix between debt and equity, right? What, as a percentage of the value, as an enterprise value of this business, how much is in the debt? So if we say we are $50 billion of debt over $55 billion, and here I must have messed up a zero here, right? We're at 91 cents. Really, this is 91% LTV, right? Okay.

This is indicative of the kind of blockbuster LBOs of the '90s, really, where you had LTVs getting up to this kind of crazy level. And basically, we're saying here, the lenders in this case will be taking ostensibly 100% of the risk.

One of the things you think a lot about when you're a creditor is how much risk capital do I have sitting behind me or sitting in front of me, rather, if we're talking about the first lot piece.

So if I were thinking about this in terms of just a standalone buyout, I would say, again, let's say this $55 billion EV is right.

I would say if you're really pushing it, you're probably getting to maybe 70% of the capital structure being leveraged, but admittedly, that's really high for today still.

Then we're at $38 billion of financing, not $50.

So I think it's important to put that $50 billion of financing in context.

I think the only way that you get that financing deal done, regardless of the fact that you can probably support a seven times debt package with a cash-generative business.

What you can't necessarily do is get someone to lend ostensibly up to 100% of the valuation of that business with the debt package. So the only way I think this comes together is on the basis that it's the combined Stripe PayPal entity, not a pure LBO of PayPal on its own. Does that make sense, Deb? Yeah, completely. And it's really interesting, isn't it? That we can think about rules of thumb.

We often talk about debt-to-EBITDA multiples, but you can't just focus on that single metric. We have to kind of almost triangulate between the returns you need to generate for private equity, the debt-to-EBITDA multiples that the lenders are going to be satisfied with, and on top of that, loan-to-value numbers, loan-to-value ratios that also satisfy the lenders. And only then, if they all tie together nicely, is this a viable deal. And then we've also got to, of course, the actual company, the target itself, got to agree to the actual purchase price as well.

So we're kind of jumping between all of these different constraints, aren't we? Yeah, exactly. What we don't have are any of the financial details for Stripe and therefore for the combined business.

And if you think about almost seven times leverage being serviceable by PayPal on its own, is that serviceable by the combined group 100%? Does it look pretty moderate in the context of the total valuation for both of those businesses put together? If we think Stripe is valued at $160 billion, equity value, enterprise value, don't really know yet because we don't have details of their balance sheet. Let's assume they've got ostensibly no net debt and that those numbers are one and the same.

We add on another $60 billion or so of enterprise value for PayPal. Now all of a sudden we've got a business that's, call it $220 billion of total enterprise value.

And if we're putting $50 billion of financing on that group capital structure, actually this leverage multiple or this leverage, this LTV looks pretty low.

Yeah. Okay, that's great. Okay, now let's have a look at some of the tabs.

I know it's still building some of the detail of the model, but should we see if the sources and uses of funds is ready for us to take a look at? So here we've got this sponsor equity plug getting us to total sources of $65 billion. Now let's just see. All right.

Let's look at our uses of funds because it's going to be a bit easier to put these numbers in context looking at what we're actually buying here.

First, the PayPal equity, $55 billion, or $54 billion, sorry, $53.4. You can tell I'm on vacation, Debs, God.

$11 billion- Okay, can I just say, you keep mentioning it, and it's not making me feel any more happy about the fact that I'm teaching in Frankfurt and you're on holiday this week. But anyway, yeah, just keep dropping it into the conversation, Graham.

Okay, so we've got $53.4 billion of equity value, $10.9 billion of debt to refinance, and then we've got some assumptions here for financing fees and transaction fees.

So in terms of our total sources and uses, this doesn't look crazy, right? I go back up to my sources. In essence, we've always got the sponsor equity as the plug because we've made an assumption for the financing structure bring with us. We've said that we can use this $6.3 billion of excess cash on PayPal's balance sheet.

Mm-hmm.

So this looks about right. Okay, now we've got, let's see, sponsor equity contributions. We don't really know what the details behind the scenes are in terms of where this equity is coming from.

So we've got Stripe, Advent, Block as a co-investor.

Okay, at this point, I'm not really too concerned with this part of the model because it's not really going to tell us much in the standalone PayPal model that we're taking a look at.

Operating model. Let's see. How have we built this here? Got some assumptions for revenue growth, EBITDA margin, DNA, CapEx, changes in working capital. These are basically the same drivers that we use.

Build a really mini operating model- Got it ...

projection period, and then go all the way down to unlevered free cash flow from EBITDA with the main things you need to get from EBITDA to cash flow being taxes, change in net working capital, and CapEx.

And let's see. We've got EBITDA, let's see, less DNA, and then CapEx, changes in net working capital.

So we've got this stop here that says EBITDA less CapEx less the changes in net working capital. So this looks to me like we've got pre-financing cash flows, but admittedly without the impact of tax.

So I'm assuming there- Yeah, it's pre-tax at the moment ... either it hasn't been built yet or it's been ignored.

I know we talked about an assumption for a 20% tax rate, so I'm assuming it's going to pick that up at some point.

But in terms of really high-level beats, this doesn't look crazy, right? Project a really basic income statement.

We're projecting down to free cash flow, and then the whole point of an LBO model really is to take that free cash flow and then apply that cash flow to making debt repayments, which should be our debt schedule tab, one tab over.

Okay, we've got taxes included here, so we've got a link to the previous tabs, whatever we're going to call this, EBITDA less CapEx less change in net working capital, less interest expense, less cash taxes.

That gets us our actual free cash flow before debt repayment, and then we've got mandatory amort, and then we're sweeping 100% of the excess cash. But we've got, let's see, less than 100% being applied in 2030. So we're actually assuming that we pay down, I mean, we are assuming we pay down the full term loan B in this structure.

Which we are, right? So we've got ending balance on term loan B at transaction close $21 billion, and then we're paying it all the way down to zero in year five of this model here in cell G19.

I guess I wonder at this point, Graham, whether it's sensible to assume 100% cash sweep. Basically, every dollar of cash, every cent of cash they're generating is going towards paying down debt in a business where we know that they have to hold a certain level of operational cash for help facilitating payment settlement.

So I feel that's a bit punchy, but I don't know. You tell me.

In your experience, did you see 100% cash sweep used often in your LBO models? Actually, this is a really good point.

One thing I'm checking for here is to see ...

because we obviously built in a concept of min cash here, right? Okay, we do have the cash schedule here. I was looking for just this line in essence, because basically what we're saying is if we start with $3 billion in min cash, and then we apply 100% of whatever cash we generate in the subsequent periods, we should always keep this $3 billion min cash balance- Yeah ... in essence in the bank. And this is what we can see is happening here in row 29.

Just to recap on the flow. So the operating model, that's the forecasts, the earnings, and the cash flows. We take the cash, the cash is deployed each year, paying down the debt as quickly as possible, including the interest payments on that debt as well.

Yep.

And then basically you get to the end, that summary layer in rows 27 down basically tells you how much debt and cash you have at the end of each year based on that expected repayment forecast.

So what do we do with that net debt figure? Well, now the thing we need to do is make some exit assumptions.

And you're right, basically the LBO model is just a cash flow model.

How much cash do we generate every year? Either how much of a cash balance do we build up, or how much of that cash balance are we using to repay debt? But the thing we really need to calculate our equity returns now is what our exit equity value assumption is going to be.

So in this model, we're just assuming- Okay ... we exit in five years' time, we sell the business for an assumed multiple, and what equity return does that generate? We'll touch on this in just a second because looking at PayPal as a standalone LBO model like this, I think is interesting and kind of indicative of where PayPal its own generate equity return. In terms of what the actual plan is for PayPal as part of Stripe, Stripe is not assuming that it's going to sell PayPal in five years for some exit EV multiple.

There's a much bigger plan going on here.

So you can kind of make the argument, this model is kind of fingering the air indicative at giving you where an equity return might shake out, but it's also not that reflective of the reality of this proposed transaction.

So Graeme, would the expectation be that Stripe would buy out the other equity investors at this point? So mechanics would still work, we're just talking about the layer for private equity in terms of returns at that point.

Yeah. I don't know. I'm actually really interested to find out what some of the equity investment terms are for Advent in a deal like this.

Obviously Stripe is still private. It's going to get listed at some point.

Is Advent going to monetize when Stripe lists? We've got some more interesting exit options to consider for a transaction like this that's not indicative of just the standard private equity deal.

But if we are looking at this on a standard private equity basis, obviously we've got a couple of credit stats talked about here.

We've got debt to EBITDA, AKA leverage. We want to see this multiple coming down.

We're de-risking the leverage investment over time.

Interest coverage, EBITDA over cash interest, we want to see this multiple going up because we're building more interest coverage headroom in this model over time. So high level, these look about how we'd expect.

And then we get, lo and behold, to the returns.

So you see how this works, it's pretty basic, right? We say 2030, our exit year EBITDA of 9.7 billion.

We've got an exit multiple assumption.

We're just saying this is equivalent to our entry multiple, so no multiple expansion at this point. We subtract the net debt, and we get our exit equity value, and then we compare the exit value to the entry value, and those are equity returns.

So we say we're generating $66 billion of equity value in year five compared to $24 billion at close. We got time and three-quarter times our money on a money multiple basis at a 22.4% IRR. So again, in terms of mechanics of this model, this model actually looks right.

If we were looking at this on just a straight up private equity, we're going to buy out PayPal, hold it for five years, and then sell it, this model makes sense to me. It's not crazy. Would we tweak some of the assumptions a little bit? Would we change the leverage assumptions a little bit? Would we push the purchase price up a little based on the fact that this offer's been rejected? Yeah, we would. We see these returns go down a little bit, maybe.

But in terms of the way this model has been built mechanically, it's got everything you'd expect to find.

Again, as a first pass, here's a simple prompt, build me a basic LBO model. This is a basic LBO model.

This doesn't look too different from some of the ones that we run through in the classroom. I haven't obviously gone through and audited any of the formulas here.

Would I find some stuff in terms of the way, say, interest expense is calculated that it might change? Maybe.

But again, finger in the air, high level, this doesn't look crazy.

I agree. I think this is looking pretty good, and actually it suggests that the numbers do work on a standalone, traditional LBO basis.

We've used very cautious leverage assumptions here, five times debt to EBITDA, which is lower than the actual proposed transaction, and you're still coming out with an IRR of about 22%. That's not bad, is it? You are. Admittedly though, we're still in the region of, if we think about debt to total capitalization here, we're still in the kind of upper regions of where we'd see loan to value.

So by the way, it does make sense- Mm-hmm ... that this deal works on a base case equity return basis.

We're not buying for an insanely expensive multiple.

A decent share of that entry enterprise value is being financed with leverage. So there's a decent amount of just pure financial engineering going on here to kind of say, yeah, this does- Yeah ... probably make sense.

Okay. So two things. I think we should make this available in the show notes, because this is actually the first time we've looked at a proper LBO model.

I know we've looked at some scratch calculations for LBO returns, but actually this is a proper LBO model.

I think it'd be quite good to show that people can have a little navigate- Yeah ... through the formulas. We don't promise that the formulas are correct.

But it gives you a look and feel.

Definitely don't promise that. Right.

Don't use this in an interview necessarily.

Don't take this as 100% correct.

I'm on vacation, so I'm going to send this off, and then I'm going to head out on a hike today, so don't expect it to be fully gone through.

But for a first pass, not too bad. I haven't even tried.

I'm going to hit F12. Hey, F12 does work on a Mac.

It does save as here. I'm going to save this down, save a new version, and we'll get this uploaded as part of the show notes when this episode goes live.

Fantastic. And then the other thing I think we should promise our listeners is that we will revisit this. Because I have a sense, and I'm sure you do as well, Graeme, that this is a deal that will keep moving, it'll keep progressing.

It's now kind of the ball is back in the bidder's court to come back with a higher offer now that it's been rejected.

The numbers look sensible enough that it looks like it could still work, even if the price goes up slightly. So we should revisit this.

We've saved the model down, so we can just keep fine-tuning it and revisiting it, and talking about the negotiation process, and maybe learn a little bit more about LBOs as we're watching the deal evolve.

Yeah. Indeed, fine-tuning it, and as we figure out a bit more about, say, the combined group structure- Yeah ... I'd actually be interested to see how Claude would do, actually modeling this in the way that it is really going to happen.

And see if we can make some assumptions about what we think Stripe's plan for the combined business is, and see if we can figure out how Stripe and Advent are really thinking about their equity returns here.

Because one thing I can tell you is this is helpful at being indicative, saying if we were to buy PayPal on a standalone basis. But we know that they're not just going to buy this to then sell it in five years.

So we've got to do some more detailed thinking about what this real transaction looks like. But we don't have the data for that just yet. So watch this space.

Not yet. Well, thanks so much for listening to this week's episode.

A return to looking at deals, a bit of deal dissection here.

It's been great fun, and I hope you've enjoyed listening to it, and I hope you've learnt a little bit more about LBO modeling.

So that's thanks from me for this week, and over to Graeme.

Thanks, everyone. We'll see you same time next week.