How to Build a Leveraged Buyout (LBO) Model in 5 Steps! (FREE Excel Included)

In this video, I show you step by step how to build a simple LBO model.
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⏱Timestamps⏱
0:00 - Introduction
0:41 - What is an LBO?
3:45 - Step 1
6:27 - Step 2
11:42 - Step 3
18:53 - Step 4
26:17 - Step 5
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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🔎Disclaimer🔎
All content in this video is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In addition, some of the links above are affiliate links, meaning that at no additional cost to you, I may earn a commission if you click through and make a purchase.

[@rareliquid]

If you're interested in the Wall Street Prep + Wharton Private Equity online certification program, be sure to use my code RARELIQUID for a $300-500 discount! ► New cohorts are constantly opening up so you can use code RARELIQUID at any time ► tinyurl.com/54zjjhv4 🍎Sign up for my courses🍎 ► How to get into MBA programs: forms.gle/9yEyycuP7NnQBjue8 ► How to get into investment banking: forms.gle/wt4cZrezbxVgNzGUA 💻FREE LBO Model💻 ► www.wallstreetprep.com/access/simple-lbo-model-download/

[@chriswalter92]

Private equity sounds like a mechanism that extracts the most amount of value from a business, and transfers that wealth to the few general partners. Everyone loses - the business, the employees, the local consumers, the tax payers.... except for the general partners

[@tahirisaid2693]

The people you’re claiming don’t benefit wouldn’t have benefited with or without the private equity buyout. The business was failing before private equity came in, they just more efficiently manage the end of the companies life. Most likely allowing most companies to work there longer than they would have been able to do before.

[@hyehyunpark530]

Your videos are super clear and helpful! Thank you for putting these together! ❤

[@shubhankarshekhar3447]

Literally was looking for lbo today..man amazing work 👏

[@UNKNOWN-1589]

This video is unreal ! Thank you Ben

[@altynnurzhekey9118]

Honestly the best LBO model tutorial I have ever seen! Can you please do the same for M&A model? Thank you for all your hard work, truly appreciate the content!!!

[@Roshanvyas25]

Hi Ben, your videos are always helpful. Please make a advance video with sensitivity table analysis

[@linghuizhu9831]

Literally the best LBO tutorial on the market! Could you also share one tutorial for project financing and one for real estate sector? Thank you!!

[@rareaqua7]

Greetings from Frankfurt, Germany! I’m continuously amazed by the exceptional quality of your financial modeling content on KZbin. Your expertise in simplifying complex finance concepts and making them accessible to everyone is truly remarkable. In today’s world, where such knowledge is often behind paywalls, your generosity in sharing it for free is highly commendable. Your contributions are not just educational but also inspirational for aspiring finance professionals globally. Keep up the fantastic work!

[@achmadfaizalazmi5199]

Thanks bro, this is very helpful! Looking forward to the advanced topics in LBO!

[@soumyaranjansenapati717]

Crisp and clear video. Thanks for educating

[@camilleassiadam5057]

I’ve watched all of BIWS and WSP and you demo better than them because you build the model from scratch and we can understand why you’re making every decision/assumption. A lot more applicable, would def buy a full modeling course from you.

[@LarzOG]

I loved the real estate analogies. Super helpful! It seems like this model could even be used to make a real estate purchase if I’m understanding correctly. It might even be easier to make certain assumptions in real estate as opposed to a business.

[@ng6966]

best LBO model video I've watched so far! thanks a lot!

[@MJ-cg8vp]

This is perfect! Loved it!

[@bennykell3]

Very good video, watched it all start to finish. You learn something new everyday! I work for a hedge fund for a convertible strategy, but always interested in learning new modelling - even after 10 years in the industry. All the best

[@ayushjain2871]

Loved the video. People like you sharing such realistic financial models are seriously rare. Really thankful for it.❤❤

[@FelipeCorto]

I love this type of content. Keep it up!

[@TommyZchannel]

This video was super interesting. I am waiting for the next one, thank you.

[@kathyzhang4713]

This is extremely helpful!! Thank you so much!!

[@ggas33dfdf]

Just a hint for everyone else: If you press F4 to fix the row for the revenue you can copy paste the formula for all other items in the model. That you way you don't need to reference revenue all the time :) Thanks for the video!

[@lauravelez1776]

Amazing content!!! So easy to understand

[@antoniostefanile]

All crystal clear to improve my models! Thank you!

[@xj7937]

your videos help a ton!

[@chelseajacobs8876]

Thanks for putting this fantastic lecture. Please we want more advanced LBO lectures.

[@Talib_Husain18]

Thanks for such a succinct explanation!

[@user-bs7si1cq4l]

Great tutorial! Thank you so much

[@aishwaryapotdar1348]

Thanks for these videos ❤

[@olli999]

Very cool video Ben, thank you. I enjoy these model videos. That anime glass glare is a nice bonus haha.

[@WazMcLaren]

Great stuff thank you!

[@xaudaniel]

Very useful, Thank you.

[@dumengyue2401]

geeeez, super useful!!!!! thank you !!! already follow and looking forward to watching other videos!!

[@michaelcortez1798]

Would love to see an M&A model in the future as well, great stuff as always!

[@adrianbordbar2676]

Yess!!

[@fitnesswithayoub2903]

yes please do more advanced LBO especially with the sesetivity analysis or table

[@bacool]

I see Ben post new modeling tutorial, i hit like button. very simple

[@htag90]

thanks, really useful!

[@user-fu1ol1cr5d]

Thank you!

[@reefrocks12]

Thanks for the model. Would love to see a more detailed one with variable scenarios. Cheers

[@jeremybacani]

Got served an IG ad for an LBO tutorial/template behind a pay wall - thanks for posting. Ain't no way I'm spending to unlock

[@jcacere3]

I would like an advanced LBO topics video. Great stuff

[@aishwaryapotdar1348]

Please do an accretion dilution video for M&A as well! Thanks for this video ❤

[@Sharpyour_mind]

Thanks dear 😊

[@nandoborchardt4327]

When creating the debt schedule: Wouldn't we pay of the Sr. Notes first? Since Seniority Notes take priority?

[@julie_chen]

Thank you ! 🙏

[@Steven.C.S.]

Great video. Can you explain why you call it levered cash flow instead of unlevered cash flow as you do not take the debt and interest payments into account?

[@kapildev4551]

Hi... I have started watching your videos from DCF valuation methods and they are quite interesting and easy to follow. I have one request to you to make one video on IPO Valuation Model (build it from scratch) as I have not seen any detailed video on that. Thank you so much for all the work you are doing!!

[@cheyyarguy]

This is awesome! Thanks for the video and your time.

[@rareliquid]

My pleasure!

[@michaelchitawo5699]

Hi thanks for always putting out great content. I wanted to ask if you have a real estate valuation course? One that lets you calculate the expected return on a rental purchased?

[@trebron9512]

Amazing, suuuper helpful!! When is the more detail LBO case study video (incl scenarios, sensitivities, different types of debt etc) coming?? Cant wait!

[@yannbeko]

Wow that's like a new version of merger and inquisition. It is really cool that you do this kind of vid's

[@rareliquid]

thank you!

[@leejason7379]

Its my first time watching your video and thanks for the great stuff!! One question I had was, whether it is usually the case that the sponsor will have to paydown all of the tranche 1 principal before paying down any of the tranche 2 principal. Obviously, tranche 1 lender will not want the sponsor to paydown any of tranche 2 before tranche 1 principal is fully paid down, but I wonder if there are real world cases where sponsors are allowed to pay down at list a portion of tranche 2

[@SandraTan-id2wt]

Hey! Thanks for your video. Just wanted to ask about the paydown on the senior notes. Shouldn't the formula be something like =MIN(Levered FCF, MIN((Levered FCF - Bank Debt Paydown), Beg Balance of Senior Notes). Because if let's say the amount of LCFC you have after paying down your bank debt exceeds the beginning balance of your senior notes, then that would give you a negative ending balance for your senior notes right? Thanks!

[@FeilinNi]

Can you help doing a merger model with accretion/dilution? Thanks!

[@GurdeepSingh-qg5vo]

in the debt schedule you could pay out the senior notes first since they bear more interest than the bank debt?

[@lcuashuron7801]

thx bro

[@akankshashrivastava100]

If we paydown only 49 and so on which is less than total interest payment won't it be a negative sign for banks and will add up penalty to it?

[@wendelllim7332]

Bro please make a more advanced lbo model please 🙏🏼

[@narutokun616]

HAHAHA the glasses - love it.

[@JY-kk9uo]

Can you model out the 3 statements and then perform a DCF?

[@fachribudianto1490]

Hi Ben! For the next tutorial video could you build a company deck/pitch deck in powerpoint as an investment banker usually does? Thanks!

[@aishwaryapotdar1348]

Yeah, I love this idea!

[@leilaan9344]

Could you do a DCF model for a renewable energy or utilities company?

[@harshsharma5286]

if terminal value is given alongside levered FCFs, should I do TV+PV(sum of FCFF) - Net Debt or PV - Net Debt ??

[@vikasmishra7325]

Hi Ben, Are you aware of debt beta which is prevalent in the PE domain? If yes, please make a video on it.

[@vedad5205]

Hi, do you have modeling for private debt /credit? Thanks

[@adiashro]

In the model you took an assumption of 10× multiple which reflects a hurdle rate of 7%~ required by investors, but you also pointed that the usual hurdle rate (wacc) required by PE is usually 15% , which reflects a 5× multiple. How do you settle the contradiction?

[@GabrielMacari]

Fialho quando esses 5 benefiarios renovam? Na prática. Consigo vender quantas vezes no ano milhas da tudo azul pela hotmilhas?

[@Anonbanker]

Hey Ben, I’m an incoming summer analyst at JPM in the SF HC group. I really enjoy your videos and they helped me a lot with my recruiting process. I’d love to hop on a 15 min call at some point and hear a bit more about your experience if you have anytime in the next few weeks. Thanks!

[@doniii4038]

How is it going

[@vishnuVardhan-in6em]

i have a doubt i am not getting why you calculated paydown value differently for in debt schedule for bank debt and sr notes can you clarify that

[@murarithakur3377]

Hey you are saying levered free cash flow but according to your formula it is unlevered free cash flow as you are not subtracting interest. Can you please confirm if it is unlevered or levered free cash flow? Also i can't find the pdf

[@gauravbhayana4626]

Thanks! for the video but can you also upload a M&A Model soon?

[@jatakatah603]

Hi i can access the excel file but i think you have not uploaded the pdf file, can you please provide the link of pdf

[@piojosefina2568]

why is the net present value of free cash flow not calculated?

[@omarnabil1862]

why net borrowing is not included in levered cashflow?

[@ayushkabra1119]

Why didn’t we choose to pay down the senior debt first and then the bank debt, as the senior debt has higher interest expense?

[@user-vw2id1no6u]

How similar would this be to doing a paper LBO in an interview?

[@joaovictorbenaconoliveira8326]

Anyone know what mechanical keyboard he uses?

[@DawnOfDoom12]

Hey @rareliquid , I am relatively new to finance and haven't studied it. I saw on most sources that we should always aim to pay off higher-interest debt, so would you mind quickly telling me why the bank debt is being paid off before the senior notes for this specific example? I don't think it affects the theoretical model in this case, but I'm guessing in practice, people would fight over who gets their money first, yes?

[@rareliquid]

mistake on my part lol

[@hidiryildiz3477]

Hi, Can't download the excel. Could you share the link please ?

[@josslaughton-scott9878]

I get why you’d want to pay down the higher interest trance first, but surely the lower interest is less risky and therefore more senior?

[@TT-xl2td]

Fantastic breakdown 🥸

[@lazizaakramova8602]

What do you think about AI in the financial industry

[@edoardotamburi4598]

In the explanation for the debt waterfall you said that the higher-interest debt should be paid first (to minimize interest expense). In the example, however, you started principal repayment from the bank debt (6%) to only pay the senior notes (12%) afterwards. I'm wondering if there's a reason for that that maybe I missed because I would've expected the opposite waterfall order... thanks in advance!

[@mateobeltroy]

That must’ve been a mistake. You’re correct, he should be modeling to pay off the higher interest debt first. Also, he is using the entire amount of levered free cash flow to pay the principal without considering that he needs to subtract the interest from that since he will not have the full amount of levered FCF to apply towards the principal because of the interest payments.

[@RR-et6zp]

yeah but how do you raise money to get this

[@marcodimarco2990]

why didn't you pay senior debts for first, given they have higher cost in percentage?

[@seangommier8652]

Appreciate your videos. However, I will give one point of feedback. This makes the PE process seem so simple. I understand there are use cases for a high-level LBO, but think for those looking into this, it would be helpful to at least mention that in general, there is a massive underlying operating model that is leveraged. It isn't just plugging in a margin expansion and revenue growth rate.

[@aishwaryapotdar1348]

Wouldn’t this create a circularity? Cause the interest expense affects the levered fcf which affects the debt paid down and the interest paid? Or am I tripping?

[@FrancescaMercuri-yq3ci]

Where we can find data to build an Lbo model for a real society?

[@QrankChannel]

You should have calculated your interest based on the averge of beginning and ending balance.

[@ramansingh7560]

It is ausummm

[@collegechats]

How come you didn't include the debt repayments in computing LFCF? Also how come you started your waterfall paying down the lower cost debt first? Would you not pay down the 12% senior notes first? Thanks for this tutorial regardless - super helpful!

[@axeldahlman2405]

I think the bank requires you to pay down their debt first, its one of their commands

[@monkynutss711]

@@axeldahlman2405 Correct

[@Durrr20235]

At step 4, how come the paydown is less than the interest?

[@avensCL]

Are you recruiting for PE? You do have the tailor-made CV for that. And also (stereotypical I know but), do you happen to speak Mandarin? Because PE in Asia can straight up make you rich.

[@Nicoleoliver294]

What's it called when the LBO doesn't have any company with any debt/cash flow/revenue, and it's just in idea stage?

[@collingibboney3881]

Where do I get this model lol

[@dreamtofly3304]

Hi . I am watching your videos for a long time . I have done bba( hons) from india ( major subjects were - financial management, accounting etc ) after this I have done mba in finance from uk ( major subjects- corporate finance, valuation of securities, Managerial finance , banking and regulations, global financial markets) I don't have any work experience in finance . I want to become a portfolio manager in a hedge specifically ( more interested in activity managed portfolios ) . Can you pls guide me cfa or frm which one will be good for me and why ?

[@shivanshshukla5883]

None I think networking is the way to go you made a mistake going abroad with work experience you won't get sponsored visa without work experience for indian market CA and indian MBAs are dominating here I guess Networking is the way to go nothing else required if nothing works out get into accounting roles and start somewhere

[@keithleyjarvis5663]

M&A model please

[@LiquidM3th]

Wouldn’t it make more sense to pay off the debt with the higher interest rate?

[@rareliquid]

yup i made a mistake lol

[@stillakzo]

Someone is secretly working in a private equity firm. 😅

[@rareliquid]

lolll nah just made some LBOs when i was at jpm

[@gauravbadve9692]

​@@rareliquidcan you please share with us, few models that you built while on the job along with a set of assumptions and what transaction they served. Would be super knowledgeable to understand how a live deal went about

[@shivanshshukla5883]

​@@gauravbadve9692wouldn't that be confidential information?

[@Jhj11755]

@@shivanshshukla5883he could hide the real name and replace it with a fake name and change the numbers up a bit. E.g jpm -> Japan Mortgage, Goldman Sachs -> Golden Socks etc

[@abez6166]

Isn’t the formula for IRR at the 27 minute mark actually the formula for cagr. IRR is based off cash flows not MOIC. Great Value video though 👏

[@josephzenteno8293]

Can an experienced worker enroll in the PE course?

[@bacool]

email Wharton team, I did to ask same q, they are willling to even have a call

[@rareliquid]

yup anyone can enroll! but a call would be good to see if it’s worth it for you