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Simple LBO Model

Guide to Understanding the Simple LBO Model

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Simple LBO Model: Video Tutorial

In this video tutorial, we’ll build a leveraged buyout (LBO) model, given some operating and valuation assumptions, in Excel.

The goal of this video is to show you that an LBO model is actually a very simple transaction at its core – and quite similar to the mechanics involved when purchasing a home.

Simple LBO Model – Excel Template

Use the form below to download the Excel template that goes along with the simple LBO model video series.

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Building a Simple LBO Model (Video 1 of 3)

Building a Simple LBO Model (Video 2 of 3)

Building a Simple LBO Model (Video 3 of 3)

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Additional LBO Resources

We hope you found this video tutorial. If these videos made sense, you have a basic foundation for delving deeper into the more complicated mechanics of an LBO Model.

If you are preparing for private equity interviews, below are additional tutorials to show you exactly how private equity firms test your LBO knowledge via interview questions and modeling tests:

  1. Top 25 Private Equity Interview Questions – Baseline knowledge around the technical aspects you’ll be expected to know in PE interviews.
  2. Paper LBO Test – Given at earlier rounds, you’ll get a pen and paper (no calculator) and 5-10 minutes
  3. Basic LBO Modeling Test – You’re given a laptop, simple instructions and ~30 minutes – this serves as a slightly more robust early-round screen than the Paper LBO
  4. Standard LBO Modeling Test – You’re given a laptop and 1-2 hours. This is the most common LBO Modeling Test given at lower-middle market and middle-market PE firms.
  5. Advanced LBO Modeling Test – You’re given a Laptop, a 5-15 page packet of financial data, and 3-4 hours. You’re most likely to see this from upper-middle market firms or mega-funds in the later rounds of the interview process.
Master LBO Modeling Our Advanced LBO Modeling course will teach you how to build a comprehensive LBO model and give you the confidence to ace the finance interview.
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December 8, 2021 3:18 pm

The equity value upon exit is less than its current market cap and we would be paying a premium. Why would you do this?

December 15, 2020 2:49 pm

I don’t understand the pre-deal information, transaction and exit year
assumptions for CVS in the LBO primer. Can you explain it to me? Thank you.

July 14, 2020 10:27 pm

In the second video, at the time between 3:55 – 3:56, what is the shortcut you used to fill in all the blanks to the right?

December 24, 2019 12:28 am

Hi, could you explain why Enterprise value in the exit year is equivalent to EBITDA * EBITDA multiple (6.5x); arent Enterprise Value and EBITDA two different values?

November 23, 2019 8:09 am

Hi for “LBO debt, beginning of period” for 2013, should it be 14,500? Because your net debt/EBITDA(debt capacity) multiple times LTM EBITDA gives net debt for LBO which is 14,400. Now to get LBO debt you need to add the current cash 100. Or am I wrong with any calculation?

Curious Learner
Curious Learner
October 17, 2019 10:41 pm

For Cash we added, prior cash ($100)+ additional from projection periods. However, we did not add prior debt of $600to 2012 debt, why?

July 28, 2019 9:07 am

Hi, Isn’t it wrong to include the 100 in Cash (cell C41) in the optional paydown for 2013 (cell D50)? The model implies that the cash balance initially on the company’s balance sheet are being used to pay down the debt, when the LBO is first carried out (thereby reducing… Read more »

January 18, 2019 12:42 am

The videos were really helpful in understanding the math behind LBOs. Thank you for making such videos.

Elizabeth Alexander
Elizabeth Alexander
October 5, 2018 12:38 pm

What is FCF after debt paydown? Is that Operating CF – Inv in PPE – debt principal repayments?

April 27, 2018 3:30 pm

Hi All,
I have a question on exit date: why the investor assumes it sells Target after 5 years? What will the investor do if the market is still avourable after this 5years. Will he stay with its investment in Target or sells irrespectively of good market conditions?

February 4, 2017 4:00 pm


Why do we not take into account the opening debt (cell 42) in the debt schedule? We do appear to take into account the opening cash, so it seems inconsistent that we don’t take into account opening debt?

Thank you for a great tutorial!

April 20, 2016 1:25 am

B:16 Free cash flows after debt paydown

net operating cash flow minus net capital expenditures minus minus debt payment plus raise debt?

April 20, 2016 12:55 am

Hi! B:9 Current Debt, what kind of Debt we should put here? The whole company liability (assets minus capital) or only debt from banks, bonds etc interest debt? If we are going to buyout a company, the price is 6 times EBITDA – 10M. 20% will be funded by our… Read more »

Dennis Limbo
Dennis Limbo
May 30, 2015 8:52 am


Does this LBO works for everyone?

March 26, 2015 5:21 am

When I calculate the exit multiple of 6.5x times the EBITDA in 2016 of 3,513.8, I get 22,840, not 22,696 as you show in this video. What did I do incorrectly?

January 4, 2015 12:03 am

After Video 2, where do we see the deduction in cash/FCF after the REQUIRED debt pay down? I say this for the formula in cash (row 41) – why isn’t cash deducted another 1,000? Where is the 1,000 required pay down coming from? Thanks!


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