LBO Model

Leveraged Buyout Analysis

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of an acquisition is named a Leveraged Buyout Analysis. It is used to determine an implied valuation range for a given target in a potential LBO sale based on achieving acceptable returns.

LBO model tutorial

Below is a step by step LBO valuation tutorial, divided into four parts. The tutorial is free and you can download the LBO model for free as well.

This tutorial is quite simple and straight on – to give you a good understanding of the LBO model and how it works. If you want to take your LBO modeling to the next level, I can highly recommend this modeling package (currently 15% off for BV-users!) which I believe is the best available financial modeling tutorial on the market (the package is called advanced LBO modeling).

Step by step LBO Valuation tutorial

In these coming four steps, you will be able to perform your own LBO Analysis. This LBO model is simplified in order to teach you the basics of a Leveraged Buy Out Valuation.

Step 1 – Enter Deal Value

If you have not yet downloaded the LBO model, it is time to do so, here is the link: LBO model template.

Deal inputs

LBO valuation input


  1. USES: Enter the acquisition price, in this example we were offered to buy this company for 17.5 million which implied a 6.7 EV/EBITDA multiple
  2. INPUT: What leverage will your acquisition have? We have chosen to borrow 4 times EBITDA, which is a moderate level. In our example, this implies 60% of total uses implying that we need to add 7 million equity in order to fund this LBO.
  3. Enter the interest rate at which you can borrow money at. We got a 6% rate when we asked the bank
  4. Input CAPEX in relation to sales. If you do not know, look at historical values found in the annual report
  5. Enter NWC (Net working capital) in percentage of sales. Look at historical values if you do not know

If you have followed this step by step tutorial this far, and enjoyed it, I would very much appreciate if you could help me promote this website by clicking the google and Facebook symbols below to recommend this site to others:

Step 2 – Enter historical financials

In this step you shall enter historical financials of sales and EBITDA margins.

Deal inputs

Historical financials


  1. Enter sales, EBITDA and taxes

Step 3 – Forecast period

In this step we shall try to make forecasts of growth and profitability.
Active Case


  1. Go to the tab Scenario in the excel spread sheet
  2. The first red circle is around the text “active case 1”. This option determines which scenario to use. 1 is normal case and 2 is the downside case
  3. Make assumptions of annual sales growth in the base case and in the downside case
  4. Enter the predicted EBITDA margin for each year. You can either make own predictions for each year, or use same margins throughout the forecast period. We have used an average of the last five years 16.4%.


Now, you have almost made all needed assumptions. See picture below:


Step 4 – Understanding the results and output

Almost done… But first we need to make the exit assumptions. We use the same EBITDA multiple as when we bought it 6.7 times EBITDA (see input below).
Exit assumptions


The LBO valuation is done. Below are the results for our example company:

LBO Output

Understanding the results

  1. We paid 7 million in equity on the entry date
  2. We will get 17 million cash when we sell the company in five years (during these five years we have paid interest on the debt and amortized 100% of the initial debt)
  3. This implies an internal rate of return of 19%
  4. We have doubled our initial equity stake 2.36 (ROIC) times during this period
  5. Some financial ratios are also supplied in the output

What now? – Further reading

If you want to become a real Investment Banker and master financial models, I have two recommendations for you:

The first recommendation is by far the best financial modeling guide available on the market. If you can afford it you should get it, since it will help you understand all aspects of valuation. Link »

The other recommendation I have is the book “Investment Banking” by Rosenbaum and Pearl which is a fantastic book with some great tutorials and it is less expensive than previous mentioned tutorial. It describes the dcf model as well as other valuation approaches extensively and also gives you a complete LBO template in Excel included with the book.

External guides and resources

Other Valuation methods

6 responses to “LBO Model”



  2. Nick

    Step 4 – Understanding the Results section has a typo. It says the IRR is 17%, but really it is 19% (as the picture above the comment, and the model itself, both correctly reflect).

  3. Shunmas

    Thank you very much for this comprehensively-explained LBO Model. However, this model assumes the target has no existing debt. Do you have such LBO models with existing debt of target? Many Many Thanks

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