What is an LBO model?

A leveraged buyout model examines an acquisition financed with a combination of debt and equity. It connects the purchase assumptions to the business forecast, debt repayment and the potential proceeds available to equity investors on a future exit.

We provide LBO modelling and acquisition financial modelling for business owners and transaction teams. The model should help you assess a decision, explain assumptions and identify funding pressure. It is not a promise of financing or investment returns.

What our LBO modelling service can include

  • Sources and uses of funds, including purchase consideration and agreed transaction costs.
  • An operating forecast linked to profit, balance sheet and cash flow assumptions.
  • Debt schedules covering interest, repayment terms and financing fees.
  • Cash available for debt repayment and liquidity requirements.
  • Equity return analysis, including money multiples and IRR where appropriate.
  • Sensitivities for trading, interest costs, leverage and exit assumptions.

We agree the model structure, forecast periods, outputs and review requirements before building. Any lender covenants should reflect the actual definitions and terms supplied, rather than a generic proxy.

Illustrative equity return calculation

Assume £2m of equity is invested initially. Five years later, an illustrative exit enterprise value of £6m less £1m of net debt produces £5m of equity proceeds before exit costs and other adjustments.

With no interim distributions or further equity contributions, that is 2.5 times invested equity and approximately 20.1% annualised IRR. These are invented figures, not an investment forecast or target return.

The result changes with debt repayment, business performance, fees and the exit assumptions. A model should show the downside and the timing of cash flows, not only the headline return.

Information needed to build the acquisition model

Useful inputs include historical accounts, the latest management reporting, proposed consideration, funding terms, the operating plan and expected integration expenditure. Where information is incomplete, we document the assumptions and separate them from confirmed facts.

We can build a new model or review an existing model within an agreed scope. Model review responsibilities, deliverables and any third-party reliance requirements should be confirmed in advance.

Connect modelling to transaction support

Our M&A advisory and transaction support can connect the model to the wider deal process. Financial due diligence support helps investigate the underlying financial information, while financial modelling services also cover operating plans, funding scenarios and growth decisions.

Tell us the type of transaction, your decision deadline and whether a model already exists. No confidential deal documents are needed to enquire. Scope and fees are agreed before work begins.

Your questions, answered.

Can you model a management buyout?

Yes. The model can be scoped around the proposed management buyout, funding structure, operating assumptions and information available.

Can you review an existing LBO model?

Yes. We can agree a review scope covering model logic, assumptions, sensitivities and outputs. The engagement should specify its limitations and intended users.

Does the model guarantee financing or returns?

No. Model outputs depend on assumptions and supplied information. Financing decisions and investment outcomes cannot be guaranteed.