Simple LBO Model

Overview This is a a classic private equity buyout. A mid-market private equity firm is evaluating the acquisition of a stable, cash-generating business generating ~$100 million in revenue and $40 million in EBITDA. The company operates in a mature industry — predictable, moderately growing, and well-suited for leverage. The investment team sees an opportunity to acquire the business at a reasonable valuation and improve returns through steady revenue growth, operational discipline, and debt paydown over time. After five years — a typical private equity holding period — the firm plans to exit at a similar valuation multiple. The key question is whether growth and deleveraging are sufficient to generate an attractive return. Using a streamlined but realistic set of assumptions, you will build an LBO model to evaluate this investment from entry to exit and determine whether the deal meets the firm’s return expectations. Learning Goals Translate transaction assumptions (entry multiple, leverage, fees) into Sources & Uses. Project a multi-year Income Statement using revenue growth and EBITDA margin assumptions. Calculate levered free cash flow by incorporating taxes, interest, CapEx, and working capital changes. Build a debt schedule and understand how cash flow drives debt paydown over time. Perform an exit analysis using an EBITDA multiple to determine enterprise value and equity value. Compute IRR and Money-on-Money (MoM) returns from entry to exit. Construct a sensitivity analysis to assess how changes in revenue growth and exit multiples affect returns. Key Concepts Sources & Uses: How the acquisition is financed and capital is deployed, including Sources of Funds and Uses of Funds. Revenue Growth & EBITDA Margin: Core operating drivers, with margins measured by EBITDA Margin. EBIT, EBT, and Net Income: Key profitability metrics including Earnings Before Tax (EBT) and Net Income. Levered Free Cash Flow: Cash available to equity holders after interest, taxes, CapEx, and working capital. Exit Multiple: Valuation approach used at exit, based on Terminal Value (Exit Multiple Method) . IRR & MoM: Core private equity return metrics, including Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC) . Sensitivity Analysis: Evaluating how returns change under different assumptions using Sensitivity Analysis .

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

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