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Paper LBO Practice Generator

Set the five assumptions a paper LBO starts from and this generator writes the prompt an interviewer would give you, then works the deal through to MOIC and IRR. Every intermediate number is shown, so you can solve it on paper first and find exactly where your arithmetic diverged. It assumes a five year hold and roughly 45 percent of entry EBITDA going to debt paydown each year.

Generated paper LBO prompt

Sponsor buys a business with 100 of EBITDA at 10 times EBITDA using 6 turns of debt. EBITDA grows 8% annually for 5 years and the sponsor exits at 10 times EBITDA. Assume roughly 45% of entry EBITDA goes to debt paydown each year.

Entry equity
400
Exit equity
1094
Return
2.7x MOIC / 22.3% IRR

Your numbers

Entry enterprise value
100 x 10 = 1000
Debt raised
100 x 6 turns = 600
Sponsor equity cheque
1000 minus 600 = 400
Exit EBITDA
100 grown 8% for 5 years = 146.9
Exit enterprise value
146.9 x 10 = 1469
Debt paid down
45% of 100 for 5 years = 225
Debt at exit
600 minus 225 = 375
Exit equity
1469 minus 375 = 1094
MOIC
1094 / 400 = 2.74x
IRR
2.74x over 5 years = 22.3%

How does a paper LBO calculation work?

  1. 1. Entry: price, debt, and the equity cheque

    EBITDA times the entry multiple gives the purchase price. Debt turns times EBITDA gives the debt raised. The difference is the sponsor equity cheque, and it is a plug, never an assumption.

  2. 2. Grow EBITDA across the hold

    The growth rate compounds over five years, so exit EBITDA is entry EBITDA times one plus growth, raised to the fifth power. Compounding is what makes a small growth difference move returns a lot.

  3. 3. Exit: enterprise value minus the debt still outstanding

    Exit EBITDA times the exit multiple gives exit enterprise value. Subtract the debt left after five years of paydown to get exit equity. Cash swept to debt is value that returns to the sponsor.

  4. 4. Returns: MOIC first, then IRR

    MOIC is exit equity over entry equity. IRR is the fifth root of MOIC minus one. State MOIC first in an interview, because it is the number you can compute in your head and defend immediately.

Frequently asked questions

What is a paper LBO?

A paper LBO is a pen and paper version of a leveraged buyout model. The interviewer gives you entry assumptions, leverage, growth and an exit multiple, and asks for the sponsor's return. It usually takes five to ten minutes and no spreadsheet.

How do I get IRR from MOIC without a calculator?

Memorise the common five year pairs: 2.0x is roughly 15 percent, 2.5x is roughly 20 percent, and 3.0x is roughly 25 percent. Interpolate between them. Over a three year hold, 2.0x is roughly 26 percent.

Why does the exit multiple usually equal the entry multiple?

A flat multiple is the conservative default and forces the return to come from EBITDA growth and debt paydown rather than from multiple expansion. If an interviewer hands you a higher exit multiple, say out loud that part of the return is multiple expansion.

What actually drives returns in an LBO?

Three things: EBITDA growth, debt paydown, and multiple expansion. Naming all three and saying which one dominates in this deal is what the interviewer is listening for, more than the exact IRR.

Practice graded LBO drills

This generator gives you the arithmetic. A graded LBO drill asks you to explain the deal: which assumptions matter, where the return comes from, and what happens when leverage moves.

Practice graded LBO drills

Free to start. No card.

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