Leveraged BuyOut (LBO) Modeling

Course details

This training course provides the opportunity for delegates to practise and improve their ability to model LBOs using Excel. On this course delegates imagine working with a business that is contemplating taking on extra debt as part of an LBO.

The LBO Modeling Program bridges the gap between academics and the real world to equip students with the practical financial skill set that they will need in private equity and leveraged finance. Students learn LBO modeling in Excel from scratch using intuitive, step-by-step instruction and model templates the way it is actually performed in private equity. The program utilizes a case study format, as students follow their tutorial guide alongside the Excel model templates, and are directed to the appropriate external documents in order to build complex LBO model the way they would on the job.

A leveraged buyout is the acquisition of a public or private company with a significant amount of borrowed funds. A private equity firm (or group of private equity firms) acquires a company using debt instruments as the majority of the purchase price. After the purchase of the company, the debt/equity ratio is generally greater than 1.0x (debt generally constitutes 50-80% of the purchase price). During the ownership of the company, the company's cash flow is used to service and pay down the outstanding debt. The overall return realized by the investors in an LBO is determined by the exit cash flow of the company (EBIT or EBITDA), the exit multiple (of EBIT or EBITDA), and the amount of debt that has been paid off over the time horizon of the investment. Companies of all sizes and industries can be targets of leveraged buyout transactions, although certain types of businesses, as discussed earlier, make better LBO targets than others.

A sample LBO model given to candidates during interviews can be used to test on a variety of issues:

 Determining a fair valuation for a company (including an ability-to-pay analysis)

 Determining the equity returns (through IRR calculations) that can be achieved if a company is taken private, grown, and ultimately sold or taken public

 Determining the effect of recapitalizing the company through issuance of debt to replace equity

 Determining the debt service limitations of a company from its cash flows