LBO Modeling: The Six Steps You Actually Need
Skip the 200-tab template. Here's the mental model interviewers want to hear when they ask you to walk through an LBO.
The paper LBO
Interviewers rarely give you Excel. They want to see if you understand the mechanics on paper — sources and uses, debt paydown, and the return calc.
Step 1: Purchase price
Start with entry multiple × LTM EBITDA. That's the enterprise value the sponsor is buying.
Step 2: Sources and uses
Uses: enterprise value + fees. Sources: new debt raised + equity check. Debt is typically expressed as a multiple of EBITDA (e.g., 5.0x for a mid-cap sponsor deal).
Step 3: Project EBITDA
Grow EBITDA over the hold period (usually 5 years). Use a simple growth rate; interviewers rarely need a full P&L.
Step 4: Free cash flow
EBITDA − interest − taxes − capex − change in working capital = FCF available to pay down debt.
Step 5: Exit
Exit EV = exit multiple × Year 5 EBITDA. Subtract ending net debt to get exit equity value.
Step 6: Returns
MOIC = exit equity / initial equity. IRR = (MOIC)^(1/years) − 1. A 2.0x MOIC over 5 years ≈ 15% IRR. 3.0x over 5 ≈ 25%.
Say it in 90 seconds
If you can walk through those six steps in under two minutes, you're ahead of 80% of candidates.