LBO model: sponsor returns in two minutes, not two hours
Enter the operating case, the price and the capital structure. Get sources & uses, a debt paydown schedule with a cash sweep, sponsor IRR and MOIC, where the return comes from, and how IRR moves with entry and exit multiples.
- Sponsor IRR of 19.8% is below the 20% target.
Sources & uses
Cash-free, debt-free purchase. Fees and the minimum cash balance are funded at close.
| Sources | Amount | x EBITDA | % of total |
|---|---|---|---|
| Senior debt | $31.5M | 3.50x | 37% |
| Subordinated debt | $9M | 1.00x | 11% |
| Sponsor equity | $44.03M | 4.89x | 52% |
| Total sources | $84.53M | 9.39x | 100% |
| Uses | Amount | x EBITDA | % of total |
|---|---|---|---|
| Purchase enterprise value | $81M | 9.00x | 96% |
| Transaction fees | $2.03M | 0.23x | 2% |
| Cash to balance sheet | $1.5M | 0.17x | 2% |
| Total uses | $84.53M | 9.39x | 100% |
Where the return comes from
Equity gain of $64.78M, split by driver.
IRR by entry and exit multiple
Rows: entry EV/EBITDA. Columns: exit EV/EBITDA. Debt stays at the same multiple of EBITDA. Your case is outlined.
| Entry ↓ Exit → | 8.0x | 8.5x | 9.0x | 9.5x | 10.0x |
|---|---|---|---|---|---|
| 8.0x | 22.2% | 23.9% | 25.6% | 27.2% | 28.7% |
| 8.5x | 19.2% | 20.9% | 22.5% | 24.1% | 25.5% |
| 9.0x | 16.6% | 18.2% | 19.8% | 21.3% | 22.8% |
| 9.5x | 14.3% | 15.9% | 17.5% | 19.0% | 20.4% |
| 10.0x | 12.2% | 13.8% | 15.4% | 16.8% | 18.2% |
Year-by-year projection
| Entry | Yr 1 | Yr 2 | Yr 3 | Yr 4 | Yr 5 | |
|---|---|---|---|---|---|---|
| Revenue | $60M | $63.6M | $67.42M | $71.46M | $75.75M | $80.29M |
| EBITDA | $9M | $9.86M | $10.79M | $11.79M | $12.88M | $14.05M |
| EBITDA margin | 15.0% | 15.5% | 16.0% | 16.5% | 17.0% | 17.5% |
| Cash interest | −$3.74M | −$3.53M | −$3.26M | −$2.91M | −$2.48M | |
| PIK interest (accrues) | $180K | $183.6K | $187.27K | $191.02K | $194.84K | |
| Cash taxes | −$1.09M | −$1.35M | −$1.64M | −$1.97M | −$2.34M | |
| Capex | −$1.91M | −$2.02M | −$2.14M | −$2.27M | −$2.41M | |
| Increase in NWC | −$360K | −$381.6K | −$404.5K | −$428.77K | −$454.49K | |
| Free cash flow | $2.77M | $3.5M | $4.35M | $5.3M | $6.37M | |
| Senior repaid | $2.47M | $3.25M | $4.07M | $4.99M | $6.02M | |
| Senior debt | $31.5M | $29.03M | $25.79M | $21.71M | $16.72M | $10.7M |
| Sub debt incl. PIK | $9M | $9.18M | $9.36M | $9.55M | $9.74M | $9.94M |
| Cash | $1.5M | $1.8M | $2.06M | $2.33M | $2.64M | $2.98M |
| Total debt / EBITDA | 4.5x | 3.9x | 3.3x | 2.7x | 2.1x | 1.5x |
In Acquifolio the model sits next to supported EBITDA, diligence findings and the IC decision, and the entry baseline carries into ownership.
Annual model with interest on opening balances, no revolver, no tax loss carryforwards, sub debt and PIK repaid at exit, and no exit costs or management equity. Not investment, tax or legal advice. Everything runs in your browser and nothing you enter is stored or sent.
How it works
Entry: EV = LTM EBITDA × entry multiple. Uses are EV, transaction fees and the minimum cash balance. Senior and subordinated debt are sized as multiples of LTM EBITDA; sponsor equity is the balance.
Each year: revenue grows at your rate and the margin moves by your bps step. Interest is charged on opening balances. Taxes are (EBITDA − D&A − cash interest − PIK) × tax rate, floored at zero. FCF = EBITDA − cash interest − taxes − capex − ΔNWC, where ΔNWC is your percentage of the revenue increase.
Debt paydown: senior debt amortizes a fixed share of the original principal each year, then the sweep applies your percentage of cash above the minimum to the remaining senior balance. PIK interest is added to the sub note and repaid at exit.
Exit: equity = exit EBITDA × exit multiple − senior − sub (incl. PIK) + cash. MOIC = exit equity ÷ entry equity and IRR = MOIC^(1/years) − 1, assuming no interim dividends.
Attribution: EBITDA growth is valued at the entry multiple, multiple expansion is applied to exit EBITDA, and debt paydown includes cash built above the minimum. Fees are a drag. The four drivers sum exactly to the equity gain.
Questions
What IRR do private equity firms target in an LBO?+
Lower and mid-market buyout funds commonly underwrite to a 20–25% gross IRR and a 2.5–3.0x MOIC over a 4–6 year hold. Larger funds often accept high-teens IRRs. The target IRR input lets you test against your own hurdle.
Why model interest on opening balances?+
Charging interest on average balances creates a circular reference, because the cash sweep depends on interest and interest depends on the sweep. Opening balances avoid the loop and slightly overstate interest when debt is falling, which makes the result a little conservative.
How is the returns attribution calculated?+
EBITDA growth × entry multiple, plus (exit multiple − entry multiple) × exit EBITDA, plus reduction in debt and increase in cash, minus fees. Together these equal exit equity minus entry equity. If more than about a third of the gain comes from multiple expansion, the case relies on the exit market rather than on the business.
How much leverage is typical in a lower mid-market buyout?+
Senior leverage of 3.0–4.5x EBITDA and total leverage of 4.0–5.5x is common, with sponsor equity of 40–55% of sources. Above 6x total leverage, financing is harder to find and covenant headroom is thin.
What does this model leave out?+
Revolver draws, tax loss carryforwards, interim dividends, management incentive equity, exit fees and quarterly timing. It is a screening model for testing price and structure before you build the full model.
Debt coverage by year, cash after debt service, IRR and the max price that hits your target.
Open tool Deal screeningIRR & MOIC CalculatorXIRR on dated cash flows, MOIC, DPI-style multiples and an IRR ↔ MOIC conversion table.
Open tool Deal screeningDebt Capacity CalculatorHow much senior debt a business can carry under a leverage cap and a minimum DSCR, and which one binds.
Open toolAcquifolio connects sourcing, diligence evidence, the investment committee, the portfolio and your LPs, so every number keeps its source.