Mastering Financial Modeling: A Professional’s Guide to Building Financial Models in Excel

CHAPTER TENCASE STUDY 5:Leveraged Buyout

The fifth case study features a leveraged buyout (LBO) transaction, the acquisition of a company by a private equity fund. The main feature of an LBO transaction is the use of a high level of debt to finance the acquisition of the target company. In an LBO transaction, the buyer (typically a private equity fund, but it can be a company as well) uses a combination of debt and equity to fund the purchase of the target company. Equity money is provided by the buyer. Debt money is provided by a lender, typically an investment bank. After the acquisition, the buyer of the target company will use the cash generated by the target company to repay the acquisition debt over time.

Here the target company is a business ...