LBO Modelling

This LBO modelling course is delivered across six focused sessions, each building the practical modelling skills required to structure, analyse, and evaluate leveraged buyouts with confidence.

Session 1 – Short Form LBO Model

• Forecasting the cashflow available for debt service from operating data
• Deal Terms: Equity Offer Value and Enterprise Value; Sources & Uses of Funds
• Allocating cash flows to repay debt using a simple cash sweep
• Linking up the interest expense
• Exit returns and sensitivity analysis of equity returns vs. entry multiple, leverage and exit multiple
• Exercise – complete a Short Form LBO model and estimate an appropriate LBO valuation range

Session 2 - Equity Value Creation

• This session analyses the components for equity value creation
• Decomposing value creation into revenue growth, EBITDA margin improvements, debt repayment, multiple expansion, and deal fees
• LBO training builds a bridge chart to show absolute amounts of value creation and Multiples of Invested Capital
• Exercise: Building a Value Creation Bridge, both absolute and Money Multiple-based

Session 3 - Completion Mechanisms and Deal Adjustments

• Contrasts Locked-Box vs. Completion Account Mechanisms
• Reconciling Enterprise Value to Actual Equity Purchase Price
• ‘Normal’ OWC
• Under/(over) spend on Capex
• Debt-like liabilities
• Locked-box roll forward concludes session 3 of advanced training, and ahead of the next exercise
• Exercise: Estimate the Equity Purchase Price after deal adjustments for Completion Accounts and Locked-Box deals.

Session 4 – LBO Management Incentive Structure

• Comparing Ratchet Share Mechanisms vs. Sweet Equity and Bonus structures
• Calculation of risk and rewards: IRR and Money Multiples
• Exercise: Contrasting RSM vs Sweet Equity and Bonus structures with varying IRRs.

Session 5 – LBO Debt Financing and Debt Capacity

• Session 5 of this leveraged buyout course begins with debt capacity/ sizing analysis
• Determining a maximum debt capacity using cash flow available for debt service
• Amortising Senior Loan
• Bullet subordinated tranches
• Exercise: Estimating the level of debt the company could support

Session 6 – Modelling a Debt Waterfall within an LBO model

As the final session, this module brings together the core concepts covered so far. We focus on how cash is prioritised, allocated, and constrained within a full debt waterfall structure.

• Estimating cash flow available for debt repayments
• Mandatory Repayments: amortising vs. bullet repayments
• The issuance/repayment of a revolver
• Cash available after mandatory repayments and revolver
• Covenant-based constraints on cash distributions to equity investors
• Accelerated/ discretionary repayments
• Final  Exercise: Build a full debt waterfall model within an LBO, with mandatory repayments, revolving credit facility, discretionary repayments and equity distributions.

After graduating from the University of Cambridge in 1993, our LBO modelling course expert began his career as an auditor at Arthur Andersen. Here, he developed a strong foundation in corporate accounting and financial statement analysis. He later qualified as a Chartered Accountant (ACA), transitioning into investment banking in the City of London, with roles at both HSBC and Merrill Lynch.

During his time in London, our expert held a front-office role advising companies on valuation, financing, acquisitions, foreign exchange, and derivatives. His broad practical experience, combined with a strong passion for sharing knowledge, naturally led him to pursue a career in training.

Over the last decade, our LBO modelling course leader has specialised in delivering high-impact financial training across a broad range of subjects, with particular expertise in leveraged buyouts. He brings extensive experience across financial modelling, corporate finance, valuation, and capital markets and has trained professionals at investment banks, private equity firms, and corporate finance teams globally.

• Build an LBO model incorporating complex debt structures
• Assess the impact of the LBO financing structure, with a focus on key structuring considerations and their implications
• Estimate debt capacity
• Identify potential adjustments in determining an appropriate equity purchase price based on a business enterprise value
• This LBO modelling course ensures participants complete a fully integrated LBO model with:
  • Deal Terms
  • Source and use of LBO funds
  • Integrated financial statements
  • Detailed debt waterfall, allocating cash flows across a debt structure with potential for dividend distributions
  • Equity value bridge charts illustrating components of value creation
  • Sensitivity analysis

LBO training at Redcliffe is a must-know for:

• Corporate Finance professionals across all levels, particularly those involved in private equity transactions.
• Private equity practitioners responsible for executing or overseeing LBO deals.
• Finance professionals within portfolio companies seeking a clearer understanding of the LBO process and their role within a private equity structure.

Starting with assessing LBO opportunities, the sessions provide a foundation to ensure participants grasp the core concepts of LBO before progressing to more advanced areas of purchase price adjustments, management incentive structures and debt waterfalls.

LBO financing structures and debt capacity are explored in this LBO course, including a review of equity, pure debt and mezzanine finance.

Sessions focus on constructing a detailed debt waterfall and building a short form LBO model from first principles, with a reconciliation of equity value creation and sensitivity analysis.