LBO
Articles
What Is a Leveraged Buyout (LBO)? Why Leverage Increases Returns
What is an LBO and why does leverage boost private equity returns? See the mechanics, the three value creation levers, and a worked example. Jetzt üben.
How to Answer 'Walk Me Through an LBO' in a PE Interview
A step-by-step framework for the 'walk me through an LBO' interview question, plus a sample script, paper LBO tips, and common mistakes. Jetzt üben.
What Is a Sources and Uses Table? The Foundation of Every LBO Model
What is a Sources and Uses table in an LBO, and why must debt and equity always balance? Learn the mechanics and practice with a worked case. Jetzt üben!
How to Build a Sources and Uses Table in an LBO Interview (Step-by-Step)
How do you build a Sources and Uses table in an LBO interview? Follow this step-by-step walkthrough with formulas and a full worked example. Jetzt üben!
MoM vs. IRR: The Two Return Metrics Every Private Equity Investor Tracks
What is the difference between MoM and IRR in private equity returns? Learn how each metric works, why funds report both, and practice with a real case.
How to Calculate MoM and IRR in a Private Equity Interview (Step-by-Step)
Learn how to calculate MoM and IRR for a leveraged buyout investment step by step, including the mental-math rule of thumb every PE interviewer expects.
What Is Multiple Expansion in Private Equity? The Third LBO Value Creation Lever
What is multiple expansion in a leveraged buyout, and why is it the riskiest PE value creation lever? See the full numbers, then practice it yourself.
How to Answer an Entry and Exit Multiple Question in a Private Equity Interview
How do you answer an entry and exit multiple LBO interview question? A full step-by-step walkthrough with real numbers. Practice the answer yourself now.
LBO Debt Structures Explained: Senior, Mezzanine, and PIK Notes
What are senior, mezzanine, and PIK notes in an LBO? Learn how debt tranches rank, price, and repay in a buyout capital structure. Practice the case now.
How to Answer an LBO Debt Structure Interview Question (Step-by-Step)
How do you answer an LBO debt structure question in an interview? Follow this 5-step framework for ranking, pricing, and the cash flow sweep. Practice now.
What Is a Paper LBO? A Conceptual Guide to the PE Interview Classic
What is a paper LBO and why do PE interviews test it? Learn the mechanics, value creation levers, and mental math shortcuts to answer it fast. Jetzt üben.
How to Answer a Paper LBO Question in an Interview: Step-by-Step
A step-by-step framework for answering a paper LBO interview question, with a full worked example, mental math shortcuts, and common mistakes. Jetzt üben.
What Is Debt Capacity in an LBO? Leverage, Covenants & Cash Flow Explained
How much debt can a company really support in an LBO? Learn the leverage, coverage, and cash flow tests that set true debt capacity. Practice the case now.
How to Answer a Debt Capacity Interview Question: Step-by-Step
How do you answer a debt capacity interview question? Follow this step-by-step framework for leverage, coverage, and DSCR tests. Practice the case now.
What Is a Value Creation Bridge in Private Equity?
What actually drives private equity returns? Learn how a value creation bridge splits EBITDA growth, multiple expansion, and deleveraging. Jetzt üben.
How to Build a Value Creation Bridge for a PE Case Study Interview
Asked to quantify a PE deal's returns in an interview? Learn to build a value creation bridge step by step, with a full worked numeric example. Jetzt üben.
What Is an LBO Debt Schedule? Interest, Amortization, and the Cash Sweep Explained
What is an LBO debt schedule, and how do interest, mandatory amortization, and the cash sweep pay down acquisition debt? See the mechanics. Jetzt üben.
How to Build an LBO Debt Schedule in a Private Equity Interview (Step-by-Step)
How do you build an LBO debt schedule in a private equity interview? A five-step walkthrough of interest, amortization, and the cash sweep. Jetzt üben.
What Is a Management Equity Ratchet? Sweet Equity, Hurdle Rates, and ESOPs in PE Explained
What is a management equity ratchet in an LBO? Learn how sweet equity, hurdle rates, and ESOPs align management pay with PE sponsor returns. Practice now.
How to Answer a Management Equity Ratchet Interview Question — Step-by-Step Walkthrough
How do you answer a management equity ratchet interview question? Follow this 5-step walkthrough with a worked example and common mistakes. Practice now.
What Is an Investment Thesis in Private Equity? Market, Operational, and Financial Thesis Explained
What is a private equity investment thesis, and how do the market, operational, and financial thesis fit together? See the one-page structure. Jetzt üben.
How to Write a One-Page Investment Thesis for a PE Case Study Interview
Learn how to structure a one-page investment thesis for a PE case study interview: market, operational, and financial thesis, step by step. Jetzt üben.
What Is Net Revenue Retention (NRR) and Why It Drives SaaS Valuations
What is net revenue retention (NRR) and why does it drive SaaS valuation and LBO debt capacity? Learn the formula, benchmarks, and pitfalls. Jetzt üben.
How to Size Debt in a SaaS LBO: ARR-Based Lending Explained
How do you size debt for a SaaS LBO when EBITDA is thin? Learn ARR-based lending, the three debt capacity tests, and why exit multiples matter more. Jetzt üben.
Tech Buyout vs. Industrials Buyout: How the LBO Playbook Changes by Sector
Why do tech and industrials LBOs use completely different leverage, growth, and exit multiple assumptions? See how sector reshapes every lever. Practice now.
How to Answer a Tech Buyout vs. Industrials Buyout Case Study in a PE Interview
Asked to compare a tech buyout and an industrials buyout in a PE interview? Get the four-part framework, worked numbers, and follow-ups. Practice now.
What Is an Add-On Acquisition in Private Equity? Buy-and-Build Strategy Explained
Add-on acquisitions drive most PE buy-and-build strategies. Learn how multiple arbitrage, synergies, and leverage work together, and practice with a full case.
How to Answer Add-On Acquisition Questions in a PE Interview (Worked Example)
How do you answer an add-on acquisition question in a PE interview? A full worked example: pricing, synergies, leverage, and multiple arbitrage explained.
What Is a Dividend Recapitalization? How PE Sponsors Take Cash Off the Table Early
What is a dividend recapitalization in private equity, and why does it raise IRR but lower MoM? Learn the mechanics and the lender view. Jetzt üben.
How to Answer a Dividend Recapitalization Question in a PE Interview (Step-by-Step)
How do you answer a dividend recapitalization interview question? A five-step framework with full worked numbers and the IRR math. Jetzt üben.
What Is a Distressed LBO? Fulcrum Security, Recovery Analysis and Debt-for-Equity Swaps Explained
What is a distressed LBO, and how does a debt-for-equity swap decide who owns the company? Recovery analysis and the fulcrum security explained. Jetzt üben.
How to Answer a Distressed LBO and Recovery Analysis Question in a PE Interview
How do you answer a distressed LBO question in a PE interview? A five-step recovery analysis framework with full worked numbers and the fulcrum. Jetzt üben.
What Is Operational Improvement in Private Equity? Working Capital, Procurement, Headcount and Pricing
What is operational improvement in private equity? Learn the four value creation levers, why three lift EBITDA and one only lifts cash. Practise the case now.
How to Quantify an Operational Improvement Plan in a PE Interview: Step-by-Step
How do you quantify an operational improvement plan in a PE interview? Size all four levers, build the EBITDA bridge, reach an IRR. Practise the case now.
Cases
What Makes a Good LBO Target?
You're in a private equity interview and the partner asks: "What makes a good LBO target?" Walk me through the key characteristics you'd screen for, and explain why each one matters specifically for a leveraged buyout — as opposed to any other kind of investment.
LBO Screening in Practice: Is MILES Car-Sharing a Good Investment?
In a real interview, you're asked: "Would MILES — the German kilometer-based car-sharing service — be a good investment?" Walk me through your assessment, purely qualitatively, without needing any specific financial figures.
What Is an LBO and Why Does Leverage Increase Returns?
Walk me through what a leveraged buyout (LBO) is, and explain why using leverage — debt — increases returns to the equity investor. Use a simple $100 million example to illustrate the mechanic.
Sources and Uses Table
Walk me through how you'd build a Sources and Uses table for a leveraged buyout. What goes on each side, and why must the two sides always balance?
MoM and IRR Calculation
As a private equity associate, walk me through how to calculate the Multiple of Money (MoM) and the IRR for a leveraged buyout investment. What's the quick mental-math rule of thumb linking the two, and what returns do investors typically target?
Entry and Exit Multiple
As a private equity associate, walk me through how the entry multiple and exit multiple affect an LBO's returns — what is "multiple expansion," and why is it considered one of the three core value creation levers alongside EBITDA growth and debt paydown?
Debt Structures in an LBO
As a private equity analyst, walk me through the different layers of debt in an LBO capital structure — senior secured, mezzanine, and PIK notes — and explain who gets paid first and why that priority matters for both the lenders and the sponsor's equity returns.
Paper LBO
Let's do a paper LBO. A private equity firm is buying a company for 8.0x EBITDA of $50 million, financed with 60% debt and 40% equity. EBITDA grows 5% per year, and the firm exits after 5 years at the same 8.0x multiple, having repaid half of the entry debt from free cash flow. Walk me through this out loud — no spreadsheet, no calculator — and tell me the approximate IRR.
Debt Capacity
As a leveraged finance analyst, walk me through how you would determine how much debt a company can actually support in an LBO — what are the different constraints (a leverage multiple ceiling, an interest coverage covenant, and a cash flow debt service test) that cap the debt level, and which one typically ends up binding?
Value Creation Bridge
You've just sold a portfolio company after a 5-year hold. Walk me through how much of the equity value you created came from EBITDA growth, how much came from multiple expansion, and how much came from paying down debt — and quantify each lever in dollars and as a percentage of total value created.
Value Creation Bridge: SaaS Buyout Variant
Same deal, different profile. You bought a fast-growing SaaS company with much lower leverage than a typical industrials LBO. After a 5-year hold, decompose the equity value created into EBITDA growth, multiple expansion, and debt paydown — and explain why the mix looks so different from a traditional industrials buyout.
LBO Debt Schedule
As a leveraged finance analyst, walk me through how you would build a simplified LBO debt schedule — how do interest expense, mandatory amortization, and a cash sweep interact to pay down the debt balance over the first few years after the deal closes, and how would you avoid the circular reference that a full model would otherwise create?
Management Incentivization and ESOP
As a private equity associate, walk me through how a management equity ratchet works in an LBO — how does a hurdle rate determine whether management's "sweet equity" stake increases at exit, and what happens to management's payout and money multiple once that hurdle is cleared?
SaaS / Recurring Revenue LBO
As a private equity associate evaluating a growth-stage SaaS buyout, walk me through how ARR and net revenue retention (NRR) change the way you'd size the debt package and set exit multiple assumptions compared with a standard EBITDA-based LBO — then show me how the sponsor's return changes if NRR erodes from 115% to 100% over the hold.
Tech Buyout vs. Industrials Buyout
As a private equity associate evaluating two potential buyout targets — a mature industrial manufacturer and a high-growth software company — walk me through how the investment thesis, due diligence priorities, capital structure, and exit strategy would differ between the two deals, and show me how a similar entry enterprise value can produce a similar IRR through completely different value creation levers.
Add-On Acquisitions in an LBO
As a private equity associate working on a portfolio company's buy-and-build strategy, walk me through how you would evaluate and finance an add-on acquisition — including how the price you pay for the add-on compares with the multiple the platform itself commands, how you size expected cost synergies, and how the deal changes the platform's pro forma leverage — then show me how much value the multiple gap between the add-on and the platform creates on its own.
Dividend Recapitalization
As a private equity associate three years into a portfolio company hold, walk me through how a dividend recapitalization works — when it makes sense, how it changes the capital structure and leverage, how lenders react to it, and quantify how much it pulls forward the sponsor's IRR compared with simply holding the investment to exit.
Distressed LBO and Debt-for-Equity Swap
As a private equity associate on a portfolio company that has just breached its leverage covenant, walk me through a distressed LBO restructuring — how a pre-packaged restructuring works, how to run a recovery analysis across a broken capital structure, and quantify exactly who gets what once the fulcrum creditors exchange their debt for equity.
Operational Improvement: What Aurelius Does
As a private equity associate at a value-oriented turnaround investor such as Aurelius, you have just signed the carve-out of an underperforming industrial business, and the investment committee wants the operational improvement plan quantified. Walk me through how you would size the working capital release, the procurement savings, the headcount reduction and the pricing action, then translate that plan into an EBITDA bridge and an equity return.