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LBO Model & Debt Schedule Calculator

Evaluate leveraged buyout returns, debt payoff schedules, MoIC, and IRR.

Formula Verified by Dr. Elizabeth Vance, PhD

Quick actions: Save inputs, view saved runs, print, share, or export results

Saved Runs

Inputs

Transaction Value

Purchase Price ($)$

Acquisition/Exit Multiple (x)

Starting Debt/EBITDA Ratio (x)

Transaction Fees ($)$

Operations & Debt Terms

Current EBITDA ($)$

EBITDA Growth Rate (%)%

Debt Interest Rate (%)%

Holding Period (Years)

Min Cash Reserve ($)$

Results

Sponsor IRR

-2.24%

Sponsor MoIC

0.89x

Sponsor Exit Equity$NaN

Initial Sponsor Equity$NaN

Total Debt Raised$NaN

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LBO feasibility depends heavily on credit pricing and exit assumptions. Save this page to quickly verify IRR and debt payoff margins when rates, leverage, or purchase multiples adjust.

Formula

MoIC formula

MoIC = \frac{\text{Exit Equity}}{\text{Initial Equity}}

Sponsor returns are measured via MoIC and annualized IRR.

Step by step

How the calculation works

1Enter target acquisition purchase price and current EBITDA.
2Define the leverage ratio to set the starting debt and sponsor equity check.
3Specify EBITDA growth rates and exit valuation multiples to calculate terminal value.
4Review the debt schedule payoff and the resulting sponsor IRR and MoIC.

Related guides

Learn more about this calculation

Guide

Business Valuation Methods: A Practical Owner Guide

Compare market, income, and asset valuation methods, normalize revenue and profit, and use multiples as a planning range rather than a formal appraisal.

Guide

ROI Calculation: Formula, Annualized Return, and Examples

Calculate ROI and annualized return with total costs included, compare opportunities consistently, and understand what a simple ROI result leaves out.

How to understand and use this calculator

Understanding Leveraged Buyouts (LBOs)

A Leveraged Buyout (LBO) is the acquisition of a company by a private equity sponsor, financed using a significant portion of debt (typically 50% to 80% of the purchase price). The cash flows of the acquired business are used to service the debt and pay down the principal over the investment horizon (usually 3 to 7 years).

Value is created in an LBO through three primary channels: paying down debt using operational cash flows (which increases equity value relative to enterprise value), operational improvements that grow EBITDA, and multiple expansion (selling the company at a higher multiple than the acquisition multiple).

Sources and Uses of Funds

The foundation of any LBO model is the Sources and Uses table. It outlines the total capital required to execute the deal (Uses) and how that capital is raised (Sources).

Uses of Funds include the purchase price of the target (Enterprise Value), transaction fees (investment banking, legal, accounting), and financing fees (costs to arrange debt financing).

Sources of Funds outline the debt tranches (Senior Secured Bank Debt, Mezzanine Debt, High-Yield Bonds) and the remaining balancing figure, which is the Sponsor Equity contribution.

Debt Paydown and Cash Sweep Mechanics

During the holding period, the target company's operating cash flow is directed toward debt service. A cash sweep is a contract term requiring that any cash remaining after meeting operating expenses, taxes, CapEx, and mandatory debt amortization be used to prepay outstanding principal.

The order of repayment follows the debt seniority: Senior Secured Debt is repaid first, followed by subordinated tranches. Mandatory amortization is paid first, then discretionary prepayments (sweeps) are applied.

Calculating LBO Returns: IRR and MoIC

Sponsor returns are measured using two primary metrics: Internal Rate of Return (IRR) and Multiple on Invested Capital (MoIC).

Multiple on Invested Capital (MoIC) measures the total return relative to the initial equity check:

$$\text{MoIC} = \frac{\text{Sponsor Equity at Exit}}{\text{Sponsor Equity at Entry}}$$

Internal Rate of Return (IRR) calculates the annualized geometric rate of return on the investment over the holding period $t$:

$$\text{IRR} = (\text{MoIC})^{\frac{1}{t}} - 1$$

A typical private equity sponsor targets a 20% to 25% IRR and a 2.0x to 3.0x MoIC.

Related concepts

IRR

Internal Rate of Return, the annualized rate of return on capital invested.

MoIC

Multiple on Invested Capital, measuring total return multiple.

Sponsor Equity

The cash check written by the private equity firm to execute the buyout.

Frequently Asked Questions

What makes a company a good candidate for an LBO?+

Ideal LBO targets have stable and predictable cash flows to service debt, low CapEx requirements, strong management teams, valuable assets for collateral, and clear operational improvement opportunities.

Why do private equity firms use leverage?+

Leverage boosts investment returns. By using borrowed money to cover the majority of the purchase price, the sponsor reduces the amount of their own equity capital required, boosting the IRR when the company is sold.

What is a Cash Sweep?+

A cash sweep is a lending agreement covenant that requires the borrower to use excess free cash flow to pay down outstanding debt principal early, reducing credit risk for lenders.

How do you calculate sponsor equity at exit?+

Sponsor equity at exit is calculated as Exit Enterprise Value minus Remaining Debt plus Cash at the time of sale. This represents the equity portion available to the sponsor.

What is the relationship between holding period and IRR?+

IRR is sensitive to time. A shorter holding period yields a higher IRR for the same MoIC. Conversely, as the holding period lengthens, the sponsor must achieve a much larger absolute MoIC to maintain the same annualized IRR.

What is the difference between Senior Debt and Subordinated Debt?+

Senior debt has first priority on cash flow and assets in a default, and usually carries a lower interest rate. Subordinated debt is junior in repayment priority, riskier, and carries a higher interest rate, often with PIK (payment-in-kind) features.

What is PIK interest?+

Payment-in-Kind (PIK) interest is interest that is paid by adding the accrued interest amount directly to the outstanding principal balance of the loan, rather than paying it in cash during the period.

How does EBITDA growth impact LBO returns?+

EBITDA growth increases the enterprise value at exit, which flows directly to the equity holders. It also increases cash flow during the holding period, allowing faster debt paydown.

What is a typical leverage ratio in an LBO?+

Leverage is typically measured as Net Debt to EBITDA. Historical averages range from 4.0x to 6.0x Debt/EBITDA, depending on credit market conditions and the stability of the target business.

What are transaction fees in an LBO?+

Transaction fees are the advisory, underwriting, legal, and accounting costs incurred to execute the buyout. They are capitalized or expensed at entry, increasing the total uses of funds.

How to understand and use this calculator

Understanding Leveraged Buyouts (LBOs)

Sources and Uses of Funds

The foundation of any LBO model is the Sources and Uses table. It outlines the total capital required to execute the deal (Uses) and how that capital is raised (Sources).

Uses of Funds include the purchase price of the target (Enterprise Value), transaction fees (investment banking, legal, accounting), and financing fees (costs to arrange debt financing).

Sources of Funds outline the debt tranches (Senior Secured Bank Debt, Mezzanine Debt, High-Yield Bonds) and the remaining balancing figure, which is the Sponsor Equity contribution.

Debt Paydown and Cash Sweep Mechanics

Calculating LBO Returns: IRR and MoIC

Sponsor returns are measured using two primary metrics: Internal Rate of Return (IRR) and Multiple on Invested Capital (MoIC).

Multiple on Invested Capital (MoIC) measures the total return relative to the initial equity check:

$$\text{MoIC} = \frac{\text{Sponsor Equity at Exit}}{\text{Sponsor Equity at Entry}}$$

Internal Rate of Return (IRR) calculates the annualized geometric rate of return on the investment over the holding period $t$:

$$\text{IRR} = (\text{MoIC})^{\frac{1}{t}} - 1$$

A typical private equity sponsor targets a 20% to 25% IRR and a 2.0x to 3.0x MoIC.

Related concepts

IRR

Internal Rate of Return, the annualized rate of return on capital invested.

MoIC

Multiple on Invested Capital, measuring total return multiple.

Sponsor Equity

The cash check written by the private equity firm to execute the buyout.

Frequently Asked Questions

What makes a company a good candidate for an LBO?+

Why do private equity firms use leverage?+

What is a Cash Sweep?+

A cash sweep is a lending agreement covenant that requires the borrower to use excess free cash flow to pay down outstanding debt principal early, reducing credit risk for lenders.

How do you calculate sponsor equity at exit?+

Sponsor equity at exit is calculated as Exit Enterprise Value minus Remaining Debt plus Cash at the time of sale. This represents the equity portion available to the sponsor.

What is the relationship between holding period and IRR?+

What is the difference between Senior Debt and Subordinated Debt?+

What is PIK interest?+

How does EBITDA growth impact LBO returns?+

EBITDA growth increases the enterprise value at exit, which flows directly to the equity holders. It also increases cash flow during the holding period, allowing faster debt paydown.

What is a typical leverage ratio in an LBO?+

Leverage is typically measured as Net Debt to EBITDA. Historical averages range from 4.0x to 6.0x Debt/EBITDA, depending on credit market conditions and the stability of the target business.

What are transaction fees in an LBO?+

Transaction fees are the advisory, underwriting, legal, and accounting costs incurred to execute the buyout. They are capitalized or expensed at entry, increasing the total uses of funds.

LBO Model & Debt Schedule Calculator

Inputs

Transaction Value

Operations & Debt Terms

Results

Bookmark this LBO Model

MoIC formula

How the calculation works

Learn more about this calculation

Business Valuation Methods: A Practical Owner Guide

ROI Calculation: Formula, Annualized Return, and Examples

LBO Model & Debt Schedule Calculator

Inputs

Transaction Value

Operations & Debt Terms

Results

Bookmark this LBO Model

Key output metrics

Outstanding Debt Paydown Schedule

Sponsor Equity Expansion

How to understand and use this calculator

Understanding Leveraged Buyouts (LBOs)

Sources and Uses of Funds

Debt Paydown and Cash Sweep Mechanics

Calculating LBO Returns: IRR and MoIC

Related concepts

Frequently Asked Questions

MoIC formula

How the calculation works

Learn more about this calculation

Business Valuation Methods: A Practical Owner Guide

ROI Calculation: Formula, Annualized Return, and Examples

Key output metrics

Outstanding Debt Paydown Schedule

Sponsor Equity Expansion

How to understand and use this calculator

Understanding Leveraged Buyouts (LBOs)

Sources and Uses of Funds

Debt Paydown and Cash Sweep Mechanics

Calculating LBO Returns: IRR and MoIC

Related concepts

Frequently Asked Questions