LBO Sanity Check
Review an LBO’s returns drivers and catch the assumptions doing the heavy lifting.
Seat
PE · IB
Level
Analyst / Associate
Runtime
~20 min
Output
Returns-driver decomposition + challenge list
What this helps you accomplish
Decompose an LBO’s returns into leverage, EBITDA growth, margin change and multiple expansion — then interrogate whichever driver carries the deal. The fastest way to look sharp in a PE seat or interview.
Delegate · 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.
- • Computing the returns attribution bridge from the model
- • Building the sensitivity grid (exit multiple × growth)
- • Pulling comparable-deal entry multiples where public
Verify
AI accelerates you here, but a professional checks the work.
- • The bridge actually reconciles to the model’s MOIC/IRR
- • Debt paydown in the bridge matches the model’s FCF sweep
- • Sensitivities flex the right cells (no dead inputs)
Decide
Judgment the human owns. This is the skill.
- • Whether the load-bearing assumption is believable
- • What downside case is the honest one for THIS business
- • Deal-breaker vs negotiating point vs acceptable risk
Inputs required
- LBO model or headline assumptions (entry/exit multiple, leverage, growth, margins, hold)
- Context: live deal review, screening or interview case
The workflow
- 1
Decompose returns
Bridge from entry equity to exit equity: deleveraging, EBITDA growth, margin change, multiple change. Attribute the MOIC.
- 2
Name the load-bearing driver
Every LBO has one assumption doing most of the work. Find it.
- 3
Benchmark the assumptions
Entry vs comparable deals, growth vs company history, exit multiple vs entry (expansion needs a story).
- 4
Test the downside
Flat EBITDA, exit at entry multiple, one turn less leverage — does the deal still clear the hurdle?
- 5
Write the challenges
The 3-5 questions the IC will ask, with the numbers that answer them.
Run this skill
Any listed company, anywhere. Ticker or name.
Quality checklist
The output isn’t done until every box ticks.
- MOIC attribution sums to total MOIC
- Every challenged assumption has a benchmark
- Downside case is stated with its return, not just direction