Introduction
LBO (leveraged buyout) model is a financial analysis tool used to evaluate the acquisition of a company using a significant amount of borrowed funds, typically by a private equity firm. It assesses the feasibility and potential returns of the transaction based on projected cash flows and the financial structure of the deal. The purpose of an LBO is usually to enable a private equity firm to acquire a controlling interest in a company.
LBOs can be risky because they rely heavily on borrowed money, which means the target company must generate enough cash flow to service its debt obligations. However, when successful, LBOs can generate significant returns for investors due to the leverage used to acquire the company.
Inputs
Revenues: Calculate the annual revenues according to sales volume growth, the number of days per year, and the unit price.
Cost Schedule: Calculate the variable and fixed costs.
CapEX: Calculate the Tax-base and accounting-base depreciation.
Financing Assumptions:
Revolving Credit Line
Loans
Senion Debt
Drivers: Drivers for scenarios analysis
Outputs
Financial Statement: According to scenarios analysis and current/deferred base taxes.
Tax Schedule: Calculate current and deferred base taxes, as well as the effects of taxation due to the interest rate.
Supporting Schedule: Working capital assumptions and debt schedule
Credit Metrics: Calculation of Financial metrics – Total Debt/EBITDA – Debt Service Coverage Ratio (Both with EBITDA cushion)
Sensitivities: Sensitivities of Sponsor IRR and Cash-on-Cash
Executive Dashboards: With graphs and Return Attributions
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