Napkin LBO
The buyout a partner sketches in a meeting, one line at a time. Price the deal, write sources against uses, run a quick debt build so the leverage actually comes down, then exit and read the return off the bottom of the napkin. Each line is checked as you write it, with room for the rounding a napkin allows.
The companion to the Paper LBO Trainer. The paper version holds debt flat and asks for the answer; the napkin builds the structure, pays the debt down and shows where each part of the return came from.
Work down the napkin in order. Each step checks against the arithmetic with room for rounding, because nobody compounds to the cent by hand.
Price the deal
Enterprise value is EBITDA times the entry multiple. Everything else on the napkin hangs off this number.
Sources and uses
Uses are what the money goes on. Sources are where it comes from. Debt is sized off EBITDA and equity is the plug.
Quick debt build
The paper LBO holds debt flat. A napkin LBO pays it down, because that is where a third of the return usually comes from.
Exit
Grow EBITDA, apply the exit multiple, take off what is still owed. What is left belongs to the equity.
Returns
Money out over money in, then convert to an annual rate using the ladder you have memorised.
Keep going
All labsNext in Corporate Finance · 3 min
IRR by Eye
Ten rounds of MOIC to IRR in your head, and every third round the other way. Holds of 3 to 7 years, an optional clock, and the ladder of rungs worth memorising.
Deal Simulations · 15 min
Capital Stack Challenge
Finance a real buyout. Size the revolver, term loans, notes, PIK and equity against the lender caps of the day, hold the structure through a shock, then see how the sponsor actually did it, with every figure linked to the filing.
Work with the model
- Leveraged buyout model · online, free; starter workbook with an account