Leveraged Buyout Model: Robust Template for LBO Acquisitions

I am really excited about this financial model. It is built for acquiring a target company by using a combination of debt and equity, inputting assumptions for expected operational activity, and defining a potential exit value. The common term used to describe such activity is LBO or leveraged buyout. In order to fit that user perspective, I've built some awesome assumptions.

$45.00 USD

After purchase, the template will be immediately available to download. It is also included in the valuation models bundle.

leveraged buyout

A leveraged buyout (LBO) model is a critical tool in the world of finance, primarily used for the evaluation and execution of private equity transactions. An LBO model provides a detailed analysis of a potential acquisition using a significant amount of debt (leverage). It allows the acquirer to understand the potential returns and risks associated with the investment.

This template makes it clear if the target company can sustain a certain level of leverage as well as the resulting return on investment when accounting for all aspects of cash requirement and return for up to a 15-year period. The primary output being solved for in this model is the minimum equity required. It is based on initial purchase price (equity portion), capex, other one-time initial costs, and net burn of initial operations. These items are all dynamic and will adjust as the assumptions are changed.

Template Features:
  • Model up to 15 years of activity.
  • Monthly and annual financial statement forecast (Income Statement, Balance Sheet, Cash Flow Statement)
  • Includes options for inventory, payables, and receivables.
  • Annual Executive Summary.
  • Monthly / Annual pro forma detail.
  • Cap Table.
  • Flexible timing assumptions for month of acquisition, start of revenue, opex items, and end month.
  • IRR sensitivity output based on varying purchase prices and leverage rates.
  • More outputs include DCF Analysis, equity multiple, ROI, IRR (of project and inside vs outside equity), and monthly driven IRR of the project.
  • Visualizations to make the financial feasibility study more digestible, including DSCR and an EBITDA vs Debt Service chart.
  • General Acquisition Assumptions:
    • Define target company acquisition price by entering their current REVENUE, EBITDA, SDE, or expected future cash flows and a multiple of those (or discount rate for DCF).
    • Select which valuation method to use of those four or you can use an average of all of them or simply define a fifth amount that is your own input for the acquisition price. A dropdown is built to select which of those options to use and will drive the target company purchase price.
    • Define the amount of debt vs equity that is used to complete the purchase. There are also assumptions for acquisition fees and the debt terms.
    • Define the amount of the purchase that is allocated to assets vs good will and for assets, the amount that is depreciated (useful life) per month.
    • There is also a CAPEX tab to account for new purchases or other capital injections for depreciable assets and a 'startup costs' tab to account for things like legal fees, closing costs, or other initial costs that are not accounted for elsewhere.
  • Revenue Options (4): - Forecast revenue by choosing from up to four methodologies.
    • Annual growth (starting monthly revenue that compounds monthly to reach annual growth goal)
    • Annual growth (starting monthly revenue that increases once each year per the growth rate defined per year)
    • Annual growth with seasonality (starting monthly revenue with an annual growth rate applied annually, and the user can define the percentage of total yearly revenue that happens in each month)
    • Monthly compounded growth (defined manually for first 24 months and then each year after that has its own input for monthly compounded growth).
  • Accounts Receivables Configuration:
    • The user can define how much of the total revenue (if any) is paid for by customers on account and how much of that is collected from month 1 to n (defined as a percentage for each month number that is entered). For example, 50% paid in month 2, 50% in month 3 or what have you. (You may be interested in this payables / receivables tracker)
  • Variable Cost Assumptions:
    • To account for costs that are directly related to revenue, there are up to 9 categories of these costs. In each one, the user can define the percentage of total revenue that is applicable for that cost type and the variable cost rate therein. For example, 20% of revenue is subject to credit card fees and the fees are ~2.8%. This is the general logic flow of each category.
    • Additionally, the user can enter a '1' next to each category in order to define if it is an inventory cost or not. If so, it is then subject to inventory assumptions (purchasing frequency and payable assumptions).
    • There is a separate 'inventory' tab to define how frequently inventory is purchased and that calculation runs off the future expected demand for inventory items.
  • Accounts Payable Configuration:
    • This logic only applies to items that are marked a '1' on the variable costs tab. Whenever those items are purchased (per the frequency assumptions on the 'inventory' tab, the user can define the percentage of the total purchase price that is paid in month 1, month 2, and so on for up to 6 months.
  • Fixed Cost Assumptions:
    • Here the user can simply pick the start month for each fixed cost and then enter the monthly cost amount per year for each item.
  • CAPEX:
    • Define any other capital injections for depreciable items. For example, to account for purchases of new equipment, property, or other items that have some useful life and a purchase date.
  • Startup Costs:
    • Define other initial one-time expenditures that are not accounted for elsewhere.
  • Terminal Value:
    • A summary of the various components of the exit value and the percentage (if any) of the exit proceeds being applied to capital assets vs going toward extraordinary income. The input on this tab only affects the taxable income on the exit month.
  • Cap Table:
    • Here the user can define how much of the minimum equity required is coming from inside vs outside inventors, their resulting share of profits, and their share of the total contributions. The IRR for each investor is also displayed here along with the contributions and distributions.
  • Taxes:
    • For tax payments, there is a simple 3 month off-set where the taxes paid happens quarterly based on the previous 3-month accrued taxes (if it was a profitable year). A taxes payable liability row will show up in the balance sheet to account for this and the cash flow statement accurately reflects what is paid.
What Makes an LBO Model Valuable?

Returns Analysis: The model enables the user to understand the potential internal rate of return (IRR) on the equity investment. By adjusting various assumptions, such as purchase price, financing structure, and exit value, users can evaluate how different scenarios impact potential returns.

Debt Serviceability: A critical component of an LBO model is the debt schedule, which outlines how the company will service its debt (both interest and principal) over time. Given that the transaction uses significant leverage, understanding the company's ability to manage and repay that debt is crucial.

Sensitivity Analysis: LBO models often include sensitivity tables that show how changes in key assumptions can impact potential returns. This helps investors understand the range of potential outcomes and the key drivers of value in the transaction.

Financing Structure: The LBO model allows users to test different capital structures (mix of debt and equity) to determine the optimal financing mix for the transaction.

Exit Strategy Planning: Private equity investors often look to exit their investments after a certain period, typically 3-7 years. An LBO model helps investors model out potential exit values and associated returns.

Operational Improvement Analysis: Private equity firms often make operational improvements to enhance the profitability of the acquired company. The LBO model can be used to quantify the potential impact of these improvements on returns.