ChannelPulse
LBO mechanics — where the return actually comes from
An LBO is an arithmetic identity dressed as a strategy. This builds one from sources and uses through a five-year debt sweep to an exit, gets 2.28x and 17.9% with no multiple expansion at all, then runs the leverage-by-exit-multiple grid that shows what each turn is worth and why the deal that needs multiple expansion is the deal that fails.
What you'll be able to do
- Build sources and uses, and say what sets the maximum leverage
- Run a debt schedule with a cash sweep and compute exit equity, MOIC and IRR
- Quantify the IRR contribution of a turn of leverage against a turn of exit multiple
- Explain the paper-LBO shortcuts and the interview answers about covenants, multiple contraction, and dividend recaps
Before this: comps-and-precedents
The rest of this lesson is in the app
An LBO is an arithmetic identity dressed as a strategy. This builds one from sources and uses through a five-year debt sweep to an exit, gets 2.28x and 17.9% with no multiple expansion at all, then runs the leverage-by-exit-multiple grid that shows what each turn is worth and why the deal that needs multiple expansion is the deal that fails. This walkthrough runs about 26 minutes, with runnable code you can edit and re-run as you read.
Continue in ChannelPulseThe first module of every track is free to read on the web — see what's open in Finance.