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
Jeff Schmidt
Jeff Schmidt

Gabriel:

The $600MM in existing debt would be refinanced when this company is acquired.

Best,
Jeff

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?

Jeff Schmidt
Jeff Schmidt

We have two webinars on Project Finance modeling and are working on a course that covers project finance but as of this date, is not currently available to the public.

Best,
Jeff

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.

Haseeb Chowdhry
Haseeb Chowdhry

Hassan,

If you sign on as a user for our Premium Package, you can download all of the videos for offline viewing - thanks.

- Haseeb

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?

Jeff Schmidt
Jeff Schmidt

MH:

You would always use the free cash flow generated in the year you are modeling the debt paydown. The $480 from the previous year has been used on something (remember we only have $100 in cash on the balance sheet so that $480 had to go somewhere).

Jeff

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.

ROWLAND
ROWLAND

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

Haseeb Chowdhry
Haseeb Chowdhry

Rowland,

Here's the Youtube link - thanks:

https://www.youtube.com/watch?v=paBl20MIXxQ

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 »

Haseeb Chowdhry
Haseeb Chowdhry

For a public company that is the target in an LBO, it's based on an offer price coming from the sponsor, which may be offered at a premium over the trading price. PE firms try to back into a suitable equity offer price that will hopefully ensure they meet their… 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

Haseeb Chowdhry
Haseeb Chowdhry

Jay,

Please reach out to support@wallstreetprep.com for any technical issues - thanks.

Best,
Haseeb

Jalal
Jalal

Hi,

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

Haseeb Chowdhry
Haseeb Chowdhry

Jalal,

If we just took $39.96/$30, we would get 1.33; the way you would interpret this is that the implied LBO share price is 33% above the current trading price. We subtract 1 so that we just obtain the premium, which is 33%.

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

Haseeb Chowdhry
Haseeb Chowdhry

Rod,

We exclude that 600 b/c that's the debt from the old structure (i.e. pre LBO). The new debt is the $14.4bn. Hope this helps!

Best,
Haseeb

Adrian
Adrian

Nice simple and clear presentation

josh
josh

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

Haseeb Chowdhry
Haseeb Chowdhry

Josh,

Can you refer to the specific place in the paragraph? Thanks!

Best,
Haseeb

josh
josh

. . .rental income down the 'raod'. . .

Haseeb Chowdhry
Haseeb Chowdhry

Good catch - thanks!

Marina
Marina

Hi,

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

Haseeb Chowdhry
Haseeb Chowdhry

Marina - please reach out to to support@wallstreetprep.com for technical assistance - thanks!

Ben
Ben

hey, i dont think the videos are showing up.

Haseeb Chowdhry
Haseeb Chowdhry

Ben - please reach out to to support@wallstreetprep.com for technical assistance - thanks!

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...

Haseeb Chowdhry
Haseeb Chowdhry

Thanks for the catch Varun - appreciate it!

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!

Haseeb Chowdhry
Haseeb Chowdhry

Thanks!

Abraham Gray
Abraham Gray

Hi Administrator,

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

Regards,

Haseeb Chowdhry
Haseeb Chowdhry

Thanks - appreciate it!

Jean
Jean

Hi there,

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

Thanks!

BR

Jean

Shannan Wilson
Shannan Wilson

Jean,
The videos are fully operational.
Shannan

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

Shannan Wilson
Shannan Wilson

Hi Marcel,
The instructor is using a proprietary The Boost Add-In, an all-in-one suite of time saving keyboard shortcuts, formatting, and auditing tools designed specifically for people who build financial models in Excel. You can find more details here (https://www.wallstreetprep.com/blog/boost-add-in-for-excel-now-available-free/). Check it out!
Shannan

joe
joe

Hi Mat,

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

Regards,
jd

Shannan Wilson
Shannan Wilson

Hi Joe,
These videos can not be downloaded.

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 »

Shannan Wilson
Shannan Wilson

Hi Jonathan, Great instincts! Your interest expense would increase and drive available FCF down as compared to previous periods. This is a very simplified version of a model where we've made simplifying assumptions to highlight the basics. Our LBO course takes an actual deal and thoroughly models it walking through… Read more »

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