LBO & Paper LBO
What drives returns in an LBO?
Model answer
Three levers
- debt paydown / deleveraging - using cash flow to repay debt grows equity value
- EBITDA growth - through revenue growth and margin expansion
- multiple expansion - exiting at a higher multiple than entry (least controllable). Leverage magnifies the equity return on all of these.
This is one of the 20 free cards. Sign up free for 10 reps a day from the full bank.
More from LBO & Paper LBO
- What is a leveraged buyout?
- What makes a company a good LBO candidate?
- Why does using more leverage increase equity returns (when it works)?
- At a high level, how do you calculate the IRR or money multiple on an LBO?
- Name the three primary value-creation (returns) drivers in an LBO.
- Of the three returns drivers, which is considered the highest quality and which is the lowest quality, and why?
Try the real thing
1 / 3M&A & Merger Models
What makes an acquisition accretive or dilutive to EPS?
Superday coming up? Take the cheat sheet.
The technicals and stories to have cold before you walk in — free, one email, no mailing list.
Free tier: 20 cards + 10 daily reps + ALL drills — no credit card required.