LBO calculator

Work out a buyout’s IRR and money multiple, where the return comes from, and the most a sponsor could pay.

IRR · MOIC · Debt paydown · Free

The deal

Any currency unit, used throughout

EBITDA at entry

Holding period

Entry multiple (EV / EBITDA)

Exit multiple

Exiting at the entry multiple is the usual starting assumption.

Transaction fees, share of EV

Minimum cash, funded at entry

The business

EBITDA growth a year

Tax rate

D&A, share of EBITDA

Only for tax: D&A is deductible but not a cash cost.

Capex, share of EBITDA

Working capital, share of EBITDA growth

The debt

Senior loan, times EBITDA

Senior loan rate

Senior amortisation a year

A share of the original loan.

Cash sweep

Share of the cash above the minimum that repays the senior loan.

Subordinated notes, times EBITDA

Subordinated notes rate

Repaid in full at exit.

Sponsor IRR

15.6%

over 5 years, nothing paid out before exit

Money multiple

2.1x

990 back on 480

Equity cheque

480

47% of the total cost, 5.5x debt

Where the return comes from

EBITDA growth at the entry multiple adds 338, the change in multiple 0, and the debt repaid and cash built 192; the fees cost 20. The four add up to the gain exactly.

Sources and uses at entry

Sources
Senior loan	400
Subordinated notes	150
Sponsor equity	480
Total	1,030

Uses
Enterprise value	1,000
Fees	20
Minimum cash	10
Total	1,030

IRR by entry and exit multiple

Your case is marked

Entry by Exit
Entry \ Exit	7.0x	8.0x	9.0x	10.0x	11.0x	12.0x	13.0x
7.0x	27.6%	32.9%	37.5%	41.6%	45.2%	48.5%	51.6%
8.0x	16.3%	21.2%	25.4%	29.1%	32.4%	35.4%	38.2%
9.0x	9.2%	13.8%	17.8%	21.2%	24.3%	27.2%	29.8%
10.0x	4.2%	8.5%	12.3%	15.6%	18.5%	21.2%	23.7%
11.0x	0.2%	4.4%	8.0%	11.2%	14.1%	16.7%	19.0%
12.0x	-3.0%	1.1%	4.6%	7.7%	10.4%	12.9%	15.3%
13.0x	-5.6%	-1.7%	1.7%	4.7%	7.4%	9.9%	12.1%

The most you could pay

Target IRR

Maximum entry multiple

9.2x

919 of enterprise value, against 10.0x in your case, with the debt and exit held

The debt is sized on EBITDA, not on the price, so paying more is funded entirely with equity. The highest price is the exit equity discounted at the target return, plus the debt, less the minimum cash, net of fees.

Debt over the holding period

Total debt over EBITDA at entry and at each year end.

Year	EBITDA	Interest	Tax	Capex	Working capital	Free cash flow	Repaid	Senior	Notes	Cash	Leverage	Cover
1	106.0	48.5	9.1	21.2	0.6	26.6	25.0	375.0	150.0	11.7	5.0x	2.2x
2	112.4	46.5	10.8	22.5	0.6	31.9	30.2	344.9	150.0	13.4	4.4x	2.4x
3	119.1	44.1	12.8	23.8	0.7	37.7	35.8	309.0	150.0	15.3	3.9x	2.7x
4	126.2	41.2	14.9	25.2	0.7	44.1	42.0	267.0	150.0	17.3	3.3x	3.1x
5	133.8	37.9	17.3	26.8	0.8	51.1	48.9	218.1	150.0	19.6	2.8x	3.5x
Exit	10.0x × 133.8 = 1,338 enterprise value, less 348 net debt = 990 to the sponsor

How it works

The sponsor buys the company at a multiple of EBITDA, funds part of the price with a senior loan and subordinated notes sized as multiples of EBITDA, and puts in the rest, with the fees and a minimum cash balance, as equity.

Each year EBITDA grows; interest is charged on the opening balances, tax on profit after depreciation and interest, and what is left after capex and working capital repays the senior loan, first its scheduled amortisation and then a sweep of the spare cash. The notes are repaid at exit.

At exit the company is sold at the exit multiple; less the debt still owed and plus the cash, the rest is the sponsor’s. The money multiple is that over the cheque, and the IRR is the yearly return that turns one into the other. The gain splits exactly into EBITDA growth, the change in multiple, debt paid down and the fees.

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