A leveraged buyout (LBO) model is constructed in the event of a an acquisition funded with a significant amount of debt to evaluate the transaction. In an LBO transaction, the assets of the target company and acquiring company are used as collateral for the loans to fund the deal. The acquirer aims at using the minimum amount of equity financing and fund the rest of the purchase price with debt, which enables investors to maximize their risk-adjusted internal rate of return (IRR). A detailed LBO model is therefore built to determine the expected return on equity and target purchase price, which tells the acquirer whether it is a worthy investment or not.

Components of the Detailed LBO Model

This model consists of several important components that all LBO models must have:


The input worksheet contains all assumptions and information required to perform the LBO analysis, including the number of shares outstanding as of the transaction date, options outstanding, and consensus street estimates on the company's key financial data such as net sales, net income, and diluted EPS.


The projections worksheet presents the three financial statements (income statement, balance sheet, cash flow statement) which contains three years of historical financial data and five years of forecast generated based on the assumptions. It also lays out the capitalization summary detailing the forecast capital structure of the target company (use of equity or different types of debt) and interest expenses.


This is the main part of the entire LBO model. The LBO worksheet consists of multiple important sections for the leveraged buyout analysis:
  • Transaction Summary: lays out the use of funds, source of funds, transaction multiples, leverage profile, and return to common equity.
  • Transaction Assumptions: includes goodwill and other intangibles, financing assumptions, mandatory amortization schedule, and other amortization schedules.
  • Pro Forma Balance Sheet: opening balance sheet, accounting adjustments, financing adjustments, and pro forma balance sheet.
  • Three Financial Statements: income statement, balance sheet, and cash flow statement after the LBO transaction.
  • Capitalization Summary and Calculation of Net Interest Expense: amount in each of the capital stack, repayment schedules, interest expense schedule.
  • Valuation Calculations: calculations of enterprise value and equity value based on trailing EBITDA multiples, as well as equity value to management and equity value to outside equity.
  • Returns to Common Equity: returns for equity investors in the LBO transaction.

LBO Tables

This worksheet includes two-way sensitivity analysis tables on the internal return on return (IRR) based on the purchase price per share and exit multiple.

DCF Analysis

This worksheet contains the discounted cash flow analysis of the target company, which includes the calculation of free cash flow to the firm (FCFF) and the terminal value using the EBITDA multiple method.

Screenshot from the template.

Who Should Use This Model

This detailed LBO model is an excellent tool for finance professionals in private equity or any other areas of corporate finance who would like to perform an in-depth LBO analysis on a target company and determine its target price based on a set of assumptions and specified capital structure.
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