Voila! You can now download this spreadsheet
DownloadHave you ever struggled to set up an efficient Leverage Buyout (LBO) model to identify the Internal Rate of Return (IRR) of a company purchase? We've created an LBO Model Template that works in both Microsoft Excel and Google Sheets to help you evaluate if a purchase is worth it. Our template ensures everything is covered: from valuation of the target company and loan viability to scenario simulation and investment return assessment. Plus, it includes extra features like charts that break down the cash flow and loan details, along with a sensitivity analysis to explore different exit scenarios and their impact on returns.
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Using our LBO Model is more than just handling numbers. It clarifies each step in evaluating an LBO, which leads to precise models and a clearer understanding of the returns. With straightforward visual analysis, you can effectively communicate your findings and engage all stakeholders efficiently.
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Before we get into details, you must enable the "Iterative calculation" option in Excel or Google Sheets to ensure the model works correctly. The LBO Model Template uses circular formulas and won't work properly without this setting activated. Instructions for this are available in the "Instructions" tab, where you'll also find additional information that can help with any questions about the model.
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The LBO Model highlights the fields where you must enter data and specifies the order in which you should do so. It also outlines optional fields for a more detailed analysis, allowing you to decide how in-depth you want to go.
Here are the steps you should follow:
Once you complete these steps, you can calculate the LBO's return results. The tabs in the model also provide additional information for a more in-depth analysis.
Use the model to create three scenarios that help visualize how the company might evolve over time and the effects on cash flow, debt repayment, and return on investment. These include: a Base Case, which is grounded in current, real data; a Downside Case that predicts lower sales and higher expenses; and an Upside Case, which expects increased revenues and reduced expenses. Each scenario is developed by applying percentage changes to financial metrics based on the year's sales, providing a thorough understanding of potential returns, covering both optimistic and cautious projections.
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Examine up to four different loans to expand your financing possibilities and enable a detailed analysis of your investment strategies. Details on loan types are available under the "Instructions" tab. The model also automatically generates a "Debt schedule" to help you track each loan's repayment and its impact on the company's cash flow. This feature outlines the available cash for debt payments and facilitates a practical view of how the LBO could function.
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The LBO Model includes a "Sources and Uses" table that fills out automatically as you enter your assumptions. This table outlines where funds come from and how they are spent during an acquisition, detailing everything from loans and investor equity to expenditures on the company purchase, debt payments, and transaction fees. This feature ensures transparency for investors and enables a straightforward evaluation of how equity and debt financing are balanced—key to assessing investment risks and viability. It also plays a crucial role in calculating the Internal Rate of Return (IRR).
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Calculate the Internal Rate of Return (IRR) using the assumptions, cash flow, and debt schedule you entered in the model. This key metric assesses the LBO's profitability and potential success by tracking the change in investor equity from purchase to sale. Additionally, the template includes a tab that lets you project returns using various exit multiples over time. The exit multiple directly affects the company's sale value and, consequently, the returns. This feature supports up to five different multiples, offering a detailed perspective on potential exit scenarios.
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The LBO Model Template provides a clear, step-by-step guide for financial scenario simulations. With accessible cash flow and debt repayment presentations, it supports accurate outcomes and risk assessment predictions when calculating the IRR. This structured approach helps investors refine strategies and deepen their understanding of financial engagements, leading to informed decisions and optimized returns.
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Voila! You can now download this spreadsheet
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