LBO Modeling Course

Lesson 1 • What Is a Leveraged Buyout

Defines an LBO, its purpose, and the economic logic of using debt to amplify equity returns. Establishes the baseline vocabulary used throughout the course.

Lesson 2 • Characteristics of an LBO Candidate

Outlines the financial and operational traits that make a company suitable for an LBO. Prepares students to evaluate target companies before building any model.

Lesson 3 • Sources and Uses of Funds

Explains how acquisition financing is structured across debt tranches and equity contributions. Provides the framework for building the sources-and-uses table in the model.

Lesson 4 • Key Parties in an LBO Transaction

Identifies sponsors, lenders, management, and advisors and explains each party's incentives. Connects stakeholder roles to deal structure decisions made later.

Lesson 1 • Normalizing and Adjusting Financials

Teaches how to strip out one-time items and owner-specific costs to arrive at run-rate EBITDA. Normalized figures form the basis of all entry and exit valuation multiples.

Lesson 2 • Income Statement Essentials

Reviews revenue, EBITDA, and net income line items critical to LBO cash flow projections. Connects income statement outputs directly to debt service capacity analysis.

Lesson 3 • Cash Flow Statement Analysis

Breaks down operating, investing, and financing cash flows to identify true free cash flow. Free cash flow is the primary driver of debt repayment in the LBO model.

Lesson 1 • Covenant Analysis and Compliance

Covers maintenance and incurrence covenants and how to test them within the model. Covenant breaches can trigger default, making compliance testing a critical model output.

Lesson 2 • Amortization and Repayment Schedules

Builds mandatory amortization, cash sweep, and bullet repayment logic for each debt tranche. Accurate repayment schedules are the backbone of the debt schedule module.

Lesson 3 • Interest Rate Mechanics

Explains floating vs. fixed rate structures, SOFR-based pricing, and PIK interest accrual. Correct interest calculations ensure the income statement and debt schedule remain linked.

Lesson 4 • Debt Sizing and Leverage Ratios

Explains how lenders size debt using EBITDA multiples and coverage ratios. These constraints directly determine the maximum debt load in the sources-and-uses table.

Lesson 1 • LBO-Implied Valuation

Works backward from a target IRR to determine the maximum price a sponsor can pay. This approach is unique to LBO analysis and directly links valuation to return requirements.

Lesson 2 • Precedent Transaction Analysis

Analyzes historical LBO and M&A deal multiples to establish a control premium benchmark. Transaction comps reflect what buyers have actually paid, making them highly relevant for LBO pricing.

Lesson 3 • Comparable Company Analysis

Selects peer companies and calculates EV/EBITDA and EV/Revenue trading multiples. Trading comps establish the market context for evaluating whether an entry price is reasonable.

Lesson 1 • Revenue and EBITDA Projection Engine

Constructs a driver-based revenue model and EBITDA bridge for the holding period. Projection quality directly determines the reliability of cash flow available for debt service.

Lesson 2 • Debt Schedule Module Construction

Builds the full debt schedule with opening balances, interest, amortization, and closing balances. The debt schedule feeds interest expense to the income statement and cash to the balance sheet.

Lesson 3 • Transaction Assumptions Module

Builds the centralized assumptions page covering entry price, leverage, and fees. All other model modules pull from this single source to ensure consistency.

Lesson 4 • Model Layout and Best Practices

Establishes formatting standards, color coding, and tab organization for a professional LBO model. Consistent structure reduces errors and improves auditability during due diligence.

Lesson 1 • Exit Assumptions and Scenarios

Defines exit year, exit multiple, and exit route assumptions for base, upside, and downside cases. Exit assumptions are the single largest driver of IRR and must be stress-tested rigorously.

Lesson 2 • Exit Enterprise Value Calculation

Computes exit enterprise value from projected EBITDA and the exit multiple assumption. The exit EV is then bridged to equity proceeds through the debt and cash waterfall.

Lesson 3 • Value Creation Attribution

Decomposes total equity return into EBITDA growth, multiple expansion, and debt paydown contributions. Attribution analysis reveals which value creation lever drove performance.

Lesson 4 • IRR and MOIC Calculation

Calculates sponsor IRR and MOIC from initial equity investment and exit equity proceeds. These outputs are the primary metrics used to evaluate and compare LBO investments.

Lesson 1 • Scenario and Case Switching

Implements a scenario manager that toggles between base, upside, and downside operating assumptions. Dynamic scenario switching allows rapid comparison without rebuilding the model.

Lesson 2 • Dividend Recapitalization Modeling

Models a mid-hold dividend recap by adding incremental debt and distributing proceeds to the sponsor. Recaps accelerate cash returns and alter the IRR profile without an exit.

Lesson 3 • Management Incentive Plan Modeling

Builds a management option pool and models dilution and vesting schedules on sponsor equity. Accurate MIP modeling ensures sponsor returns reflect true diluted equity ownership.

Lesson 4 • Model Audit and Error Checking

Applies systematic checks to verify balance sheet balance, debt schedule accuracy, and formula consistency. A clean audit trail is required before presenting the model to investment committees.

Lesson 1 • Risk Factors and Mitigants

Identifies the top operational, financial, and market risks and pairs each with a specific mitigant. Risk disclosure demonstrates analytical rigor and builds investment committee confidence.

Lesson 2 • Deal Structure Summary

Presents the sources-and-uses table, debt structure, and key transaction terms in memo format. Clear deal structure communication allows non-modelers to evaluate the financing plan.

Lesson 3 • Returns Summary and Recommendation

Presents IRR, MOIC, and sensitivity tables alongside a clear investment recommendation. The returns summary is the final output that drives the investment committee vote.

Lesson 4 • Financial Projections Presentation

Formats projected income statement, EBITDA bridge, and free cash flow for memo inclusion. Projection presentation must balance detail with readability for a senior audience.