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The LBO
Calculator
This is the arithmetic behind every private equity deal since KKR. Set the price, the leverage, and the exit, and watch what the debt does to the equity return. Drag the sliders; everything updates as you move.
Your assumptions
What the deal returns
- Purchase price (EV)
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- Debt raised
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- Equity check you write
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- EBITDA at exit
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- Exit value (EV)
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- Debt remaining
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- Equity at exit
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What this teaches
An LBO makes money three ways, and the sliders let you isolate each one. Debt paydown: set growth to zero and exit equal to entry, and the return comes purely from the company repaying its own purchase debt. Growth: add EBITDA growth and the exit value rises with it. Multiple expansion: nudge the exit multiple above the entry multiple and watch the return jump; that is multiple arbitrage, and it needs no operational improvement at all.
Now try the dark side. Set the exit multiple two turns below entry, the kind of re-rating a recession delivers, and see how much growth it takes just to get your money back. Leverage amplifies whatever happens, in both directions. That is the whole game in one slider.
This is a teaching model, so it ignores interest, taxes, capex, and fees. The full mechanics are in What is a leveraged buyout? and the vocabulary is in the M&A glossary. When you are done here, run the other two models every interview tests: the accretion/dilution calculator and the DCF calculator.
Questions
How does this LBO calculator work?
It prices the deal as entry EBITDA times the entry multiple, splits that enterprise value into debt and equity using your leverage setting, grows EBITDA each year at your growth rate, pays down debt with a share of each year’s EBITDA, then values the exit at your exit multiple. Exit equity is exit enterprise value minus remaining debt; MOIC and IRR follow from the entry and exit equity.
What is a good IRR for an LBO?
Private equity funds typically underwrite deals to a 20 to 25 percent gross IRR, which roughly means doubling the equity in three to four years. Below the mid-teens, the return may not justify the risk of the leverage; above 30 percent usually means aggressive assumptions or an unusually good entry price.
What is the difference between MOIC and IRR?
MOIC is how many times the equity money multiplied, ignoring time. IRR is the annualized rate of return, so it rewards getting money back quickly. A 2x in two years and a 2x in eight years have the same MOIC but very different IRRs.
Is this a full LBO model?
No, it is a teaching model. It ignores interest expense, taxes, capital expenditure, working capital swings, fees, and multiple tranches of debt. Real models track all of these, but the three return drivers you can see here, debt paydown, EBITDA growth, and multiple expansion, are the same ones that drive every real deal.