Leveraged Buyout, Ability to Pay
Work out what a sponsor could pay and still earn its return.
Seat
PE · IB
Level
Analyst / Associate
Runtime
~35 min
Output
LBO ability-to-pay page: Excel + slides
What this helps you accomplish
Sources and uses, a debt schedule with a cash sweep, sponsor returns at exit and the maximum price per share at each target return. The sponsor ceiling is the floor under a strategic buyer’s argument: an offer above it means the buyer is paying for synergies a financial buyer cannot claim, which is a useful thing for a board to hear said plainly.
What you get
Not a description of an output. The file itself, in the conventions a banker, a PE associate or a hedge fund analyst already reads without being told.
{TICKER}_lbo.xlsx
Excel workbook
- 1
Transaction inputs
The entry price, leverage, the interest rate, fees, minimum cash, the exit year and the exit multiple
- 2
Sources and uses ($mm)
Debt, sponsor equity and cash against the purchase of equity, the refinancing of existing debt and fees
- 3
Operating model and debt schedule ($mm)
EBITDA through to free cash flow, with interest, the cash sweep and the closing debt balance each year
- 4
Sponsor returns at exit
Exit enterprise value, net debt at exit, equity proceeds, the multiple of money and the internal rate of return
- 5
Ability to pay by target IRR
The maximum price per share at each target return, which is the number the page exists to produce
- 6
PowerPoint
Two slides: sources and uses with the returns, then the ability to pay against the offer
Where the numbers come from
From the filings: shares, net debt, trailing EBITDA, the margins and the tax rate. Every filed figure resolves to its form, period, page, the printed value and a link into the filing on EDGAR. Not from filings: the financing terms, which default to 5.0x leverage at 8.0% with fees of 2% and an exit at the entry multiple in year five, the exit multiple and the target returns. Assumptions are listed on the slide’s source line under "Not from filings", so an assumed input is never read as a filed one.
Run it yourself
python3 skills/deal-slides/build.py lbo --ticker BSX --offer 60Delegate · Verify · Decide
The core L3VLUP principle: AI output is never automatically correct. Know what to hand off, what to check, and what only you can own.
Delegate
AI is good enough to do this.
- • Pulling shares, net debt, trailing EBITDA, the margins and the tax rate with a citation on each
- • Sources and uses, the debt schedule with the cash sweep and the returns arithmetic
- • Solving the maximum price at each target return
- • Building the two branded slides with the chart
Verify
AI accelerates you here, but a professional checks the work.
- • That the debt schedule sweeps the cash it actually generates, and that the minimum cash is respected every year
- • That the exit year sits inside the projection years
- • That the entry multiple implied by the offer is the multiple the sources and uses uses
- • That the leverage and the rate are realistic for the sector and current leveraged loan pricing
Decide
Judgment the human owns. This is the skill.
- • The capital structure a sponsor would actually raise here
- • The exit multiple, and whether any expansion is defensible
- • The target return the ceiling is quoted at
- • What the gap between the ceiling and the offer says about who can win this asset
Inputs required
- Company name or ticker
- The offer per share, which sets the entry multiple
- The financing terms: leverage, rate, fees and minimum cash
- The exit year, exit multiple and the target returns
- Your own numbers where you would rather not use the default
The workflow
- 1
Resolve the company
A ticker or a name pulls shares, net debt, trailing EBITDA, the margins and the tax rate, each cited.
- 2
Set the financing
Leverage and pricing that a lender would actually offer this business today, in this sector, at this size.
- 3
Choose the exit
Exit at the entry multiple unless there is a reason not to, and if there is one, the reason goes in the notes.
- 4
Build and read the ceiling
The maximum price per share at each target return, against the offer. The gap is the synergy a strategic buyer has to find.
- 5
Test the load-bearing assumption
A ceiling far above the offer usually means the leverage or the exit multiple is generous. Far below usually means the rate or the minimum cash is punitive.
Run this skill
Any listed company, anywhere. Ticker or name.
Quality checklist
The output isn’t done until every box ticks.
- verify reports zero errors: change a blue input and every black cell recalculates
- Units are on the tables ($mm), the chart ($ per share), the multiples (x) and the rates (%)
- The subtitle and the table say the offer is compared with the current or unaffected price at the stated date
- A sponsor range far above the offer is explained by the leverage or the exit multiple rather than left standing
- Debt capacity is realistic for the sector, the rate matches current leveraged loan pricing, and the exit year is inside the projection years
Practise the fundamentals first
Free, no sign-up — in the Labs.