Paper LBO Model

Overview This exercise is a Paper LBO (Leveraged Buyout) modeling practice designed to mirror private equity interview scenarios. Using a simplified but realistic set of assumptions, you will evaluate an acquisition by projecting operating performance, estimating cash flows to equity, and calculating investor returns. The emphasis is on speed, clarity of logic, and understanding value drivers—not building a fully detailed Excel model. Learning Goals Learn how to frame a leveraged buyout by translating an entry multiple, leverage assumptions, and equity contribution into a complete acquisition structure. Develop intuition for how revenue growth and EBITDA margins drive operating performance over the investment holding period. Understand how operating earnings convert into free cash flow available to equity after interest expense, taxes, reinvestment, and working capital needs. Evaluate exit outcomes by applying an EBITDA exit multiple and bridging from enterprise value to equity value. Interpret IRR and Money-on-Money returns and decompose them into core value drivers—EBITDA growth, multiple expansion, and leverage—to clearly explain what generated returns for equity investors. Key Concepts Leveraged Buyout (LBO): Acquiring a company using a mix of debt and equity to amplify equity returns. Enterprise Value: The total value of the business at entry and exit, typically based on an EBITDA multiple. EBITDA: A proxy for operating cash flow and the primary driver of valuation in LBO models. Leverage & Capital Structure: Understanding term loans, senior notes, interest rates, and scheduled debt paydown. Free Cash Flow to Equity (FCFE): Cash available to equity holders after interest, taxes, CapEx, working capital changes, and debt repayment. Internal Rate of Return (IRR): The annualized return earned by equity investors over the holding period. Returns Attribution: Breaking total equity returns into contributions from EBITDA growth, multiple expansion, and debt paydown. Exit Multiple: Valuing the business at exit using an assumed EBITDA multiple to determine exit equity value.

Practice Paper LBO Model with interactive Excel modeling exercises in our LBO Modeling module.

This hands-on modeling exercise helps you master Paper LBO Model through real-world Excel practice and financial modeling techniques.