How can I add Cost Savings to my LBO?

Cost Savings can be added to new or existing Mosaic LBOs through the Special Situations panel. 

Including Cost Savings in a New LBO

In a new LBO, as you complete the various stages in the assumptions "Wizard," navigate to the Special Situations Step and check the box for Cost Savings:

Advance to the next step, and complete the required fields and update any default fields as required for your deal.

Adding Cost Savings to an Existing LBO

When viewing an existing LBO, navigate to the lefthand sidebar, then down to the "Special Situations" section, then to "Cost Savings" as shown below:

Complete the required fields and update any default fields as required. Mosaic will recalculate automatically and refresh the LBO outputs as shown above.

Viewing Cost Savings Details (Dashboard)

To view detailed calculations supporting the Cost Savings plan navigate to the FCF tab to see the impact from Costs to Achieve Cost Savings, and the Consolidated tab of the LBO to see the impact on EBITDA of run-rate Cost Savings as they phase in:

Viewing Cost Savings Details (Excel)

Detailed calculations supporting the Cost Savings plan can be reviewed in full transparency by downloading the model to Excel. Click the download button on the top navigation bar as shown below:

When the Excel file opens, navigate to the FCF and Consolidated tabs to review the relevant calculations therein.  

For further information supporting the methodology employed by Mosaic's Cost Savings functionality, please visit our technical guide hosted at Mosaic Academy linked below:

Cost Savings Modeling Guide

Below is some background on each assumption available in Mosaic related to Cost Savings:

• Run-rate Cost Savings. This is the sum total of the costs identified as being redundant or unnecessary to run the business today and into the future. We refer to them as “run-rate” because they may take time to fully realize – this “run-rate” amount is the total amount of cost savings that will be realized once the reduction is fully actioned. You should think about this amount as the dollar improvement in EBITDA that a cost savings initiative will create. For example, a $40mm EBITDA business with a $10mm Run-Rate Cost Savings initiative can be thought of as having $50mm of “Pro-forma” EBITDA.
• Cost to Achieve Cost Savings. Often times, the initiatives we take to action cost savings actually incur additional costs to take effect. You might logically be asking: why would you ever take on more costs to take out costs? The reason is simple: one-time vs. recurring. An example: let’s say we decide to replace a high rent Manhattan HQ with two new Queens and New Jersey offices to be closer to our employees homes. Leasehold improvements to the two new offices will cost us $1m. the Manhattan HQ Rent right now is $1mm per year, and the Queens and New Jersey offices will be $250K each instead. The annual cost savings here is $500K ($1mm - $250k - $250K) but the one-time cost to achieve these savings is $1mm. The key difference is that the savings persists year over year in perpetuity, whereas the cost to achieve is one-time. Another way to frame it – if this business sells for 10x EBITDA, this office relocation is worth $5mm to us (10x $500k) – while costing us only $1mm, or a 5x ROI.
• Cost-savings phase-in. This is the length of time, in years, that you expect it to take to achieve the full cost savings. Not all costs can be turned off immediately – some require a phased shut-off, and this assumption accommodates that.
• Cost savings growth. Modeling Cost Savings is a deviation to an operating model case which includes those costs that you are cutting. If those modeled costs are growing – for example, with inflation – then your run-rate cost take-out assumption should also grow commensurately.
• Cost-to-achieve phase-in. Not as common as Run-rate Cost-savings phase-in, but sometimes you may want to assume that your costs to achieve cost savings also are phased in. This assumption accommodates that scenario.