Question of the day
2026-08-20
LBO
Rank-order, for a classic mature-industrial LBO, the typical relative contribution of the three drivers and explain.
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
Classic order
- Debt paydown — high leverage plus strong, stable FCF makes deleveraging the biggest contributor
- EBITDA growth — modest organic growth plus margin/operational improvement
- Multiple expansion — usually assumed flat, so often near zero in the base case (any realized expansion is upside). The exact split varies by deal, but for stable, cash-generative businesses, deleveraging tends to lead, growth supports, and multiple change is conservatively excluded. ⚠ Common wrong answer: "Multiple expansion contributes the most — buying low and selling high is the whole game." Why it fails: Base cases assume a flat exit multiple, so expansion contributes roughly zero by construction. In a stable, cash-generative industrial, deleveraging typically leads, EBITDA improvement supports, and any multiple change is ununderwritten upside.
Want 10 of these a day, scheduled so they stick?
A free account gets you Daily 10 — ten questions a day from the full 2,300+ bank, spaced-repetition scheduled. No credit card.
Tomorrow's question, in your inbox.
One real IB interview question every morning — free, one-click unsubscribe, nothing else ever.