Project: full LBO model
Who asked: a partner at a buyout fund (made up for practice, like the company). The fund is bidding for Brightline Software at 10.0x EBITDA, funded with a term loan A, senior notes and sponsor equity. The investment committee meets this week.
The data: the term sheet and the operating plan on the LBO sheet: EBITDA, the entry and exit multiples, fees, both tranches with their rates and amortization, growth, margins, capex and working capital, and the tax rate.
What done looks like: sources and uses that balance, five years of free cash flow, a debt schedule that pays the term loan first and never overpays, cash and debt / EBITDA each year, exit equity, MOIC and IRR, a grid of IRRs by exit multiple and EBITDA, and a one-cell verdict against the fund's hurdles of 20% and 2.0x.
This is the model behind almost every buyout: twelve steps, one sheet, your work carrying from step to step.
1-2. Sources and uses: price, fees, two debt tranches and the equity plug.
3-4. The operating model: revenue, EBITDA, D&A, capex and working capital.
5-6. Interest on opening balances, taxes and free cash flow.
7-8. The debt schedule: mandatory payments, a sweep into term loan A, cash and debt / EBITDA.
9-10. Exit equity, MOIC and IRR.
11. A sensitivity grid of IRRs.
12. The verdict.
The order of payments matters: the term loan's mandatory amortization, then the sweep, capped so the loan never goes negative; the senior notes stay until exit. Interest uses opening balances, so there's no circular reference. Interest in 2027 onward reads 0 until step 7 builds the balances; that's expected in a build.
Sponsor equity =B9-B10-B11
Taxes =MAX(0,(C18-C19-C22-C23)*$B$55)
Sweep =-MIN(MAX(0,C28),B33+C27)
IRR =B40^(1/B58)-1
Plug, tax shield, capped sweep, compound return.