Wall Street Prep

Welcome to the Wall Street Prep Quick Lesson Series!

In this lesson, we'll build a leveraged buyout (LBO) model, given some operating and valuation assumptions, in Excel. The goal of this lesson is to show you that an LBO model is actually a very simple transaction at its core, and is quite similar to the mechanics involved when purchasing a home.

Instructor's Note: In the comments section, in front of row #48 (LBO debt, beginning of period), the note is written as "LTM Debt * LBO Debt Capacity." It should instead be labeled as "LTM EBITDA * LBO Debt Capacity."

Before You Watch: Before diving in to the videos below, please read through this LBO Quick Lesson Primer, and be sure to download this lesson's Excel model template: LBO Excel model template.

Building a Simple LBO Model  - Video 1 of 3

Building a Simple LBO Model  - Video 2 of 3

Building a Simple LBO Model  - Video 3 of 3

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Gabriel Lukuc
Gabriel Lukuc

If I am not mistaking, you did not take into account the $600M of existing debt when inputting for the debt remaining balance in cell D42 for the second video at minute 5:09. Shouldn't cell D42 be : D51+C42? Meaning the end of year new debt balance of $12,822M +… Read more »

Video Time
5:09
Syafiq
Syafiq

Thank you for the amazing introduction to LBO. The analogy to buying a house does make the concept much easier to understand. Good job for explaining.

Jim
Jim

When answering question 2 of the second group of questions "What is the highest purchase price the sponsors would be willing to pay for XYZ shares today?", why do we subtract Net Debt again? I mean we are using J59 which is equal to D48 + J56, where D48 was… Read more »

Yuqing
Yuqing

Has the debt calculation included the interest? It was not mentioned at all in the calculation.

Tariq
Tariq

Hello, what buttons did you press on the keyboard to calculate present value using 25% IRR? so what im asking what do you press to get the inverted V symbol?

Video Time
3.33
Pamela
Pamela

Does the “required cash paid down“ in cell C38 refer to the same “required cash paid down” in B38?

Prof DR MAL
Prof DR MAL

Do you have any video on Project Financial Modeling ie to determine the financial viability of a proposed project (before embarking on it)?
There is a new methodology called Engineering Finance used to enhance the ROI of projects and ensuring its long-term sustainability... can you elaborate on it?

Laura
Laura

So helpful and clear! love it.

Hassan Jatta
Hassan Jatta

Very interesting. I hope you will make the videos easy to download so that one can watch them offline over and over again.

You nailed it. I can't wait to watch the next videos.

Thanks a lot.

supriya
supriya

Thank You Sir,
The video very useful.
The LBO model with example is more easy to understand rather than reading the process.
And I think overall process of LBO analysis with decision making was covered in this video.

oluwaseun
oluwaseun

AM VERY GRATEFULL.

Shashank Didwania
Shashank Didwania

Thank you for the quick revision of LBO model....happy to have this free service

MH
MH

at 4:08 of the second video (debt schedule), Why is the free cash flow value taken from end of 2013 rather than the start (2012A) ? i.e. why 528 and not 420?

ROWLAND
ROWLAND

please can i access this videos on youtube so i can download for references.

Vishal
Vishal

Thank you for sharing this video on how to run a LBO analysis. It was very helpful and definitely offers a macro view on what such an analysis would capture. In a real life LBO analysis, how does one choose a stock price to base the analysis on? is this… Read more »

Jay sehhat
Jay sehhat

Hi
I just become a subscriber to wall street prep
you send me the quick lesson: simple LBO model and I can not download the excel template
I get the nonsense pages, sense I got the premium from you, I just want to make sure I won't have problem with excel
please help me

Sincerely
jaysehhat@yahoo.com

Jalal
Jalal

Hi,

How come you subtracted 1 from the current share price when calculating the premium in the last question 3?

Rod
Rod

Hey,

Looking at the 2nd video, didn't you miss the initial $600 debt for the starting debt on D48?

Meaning that your starting debt balance at the beginning of 2013 is the 14,400 from the loan PLUS the 600 from the period before.

Please let me know if this is incorrect and why.

Thanks!
Rod

Adrian
Adrian

Nice simple and clear presentation

josh
josh

There is a spelling error in your primer -- first paragraph under Exit Assumptions

Marina
Marina

Hi,

I am not able to access the videos. I only see the titles of the videos.

Ben
Ben

hey, i dont think the videos are showing up.

Varun Sood
Varun Sood

Just 1 thing: In the comments section, in front of row #48 (LBO debt, beginning of period), you have written it as LTM Debt * LBO Debt Capacity. I think it shoould be LTM EBITDA * LBO Debt Capacity...

Francis
Francis

Great work and I would like to get you to PNG to develop a finance school if possible.

Ewin Alarcon
Ewin Alarcon

Looking forward to the next lessons in Financial Modelling!

Abraham Gray
Abraham Gray

Hi Administrator,

Thanks so much for the first lesson.
Hope to see subsequent lesson.

Regards,

Jean
Jean

Hi there,

I could not get access to the video. Any chance to check the tech issue?

Thanks!

BR

Jean

Marcel
Marcel

Hi,

What is the keyboard shortcut to copy your formula across horizontally to the end of the data? For example, at time 7:15 in the first video.

Thanks,

Marcel

joe
joe

Hi Mat,

Would you please tell me how to download this video for an offline review?

Regards,
jd

Jonathan Lopez
Jonathan Lopez

Hi, I have a question on the required paydown of $1B per year. You are taking the debt from $600MM to $12.8B. Wouldn't your interest expense go way up, and bring your FCF way down? Where are you getting the $1B every year to pay down the debt (or, for… Read more »

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The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.