Module IV· Interview EssentialsIntermediate
Question
How do you model a sensitivity analysis in an LBO model?
Answer
What
The standard sensitivity framework in an LBO model has 4 primary dimensions:
- Entry multiple: EV/EBITDA from 8x to 12x in 0.5x steps.
- Exit multiple: same range, often with a constant assumption (exit = entry) or slight expansion.
- EBITDA growth: CAGR from 2% to 12%.
- Leverage: Net Debt / EBITDA from 4x to 7x.
Standard output
a 5×5 matrix for IRR and MOIC per entry-multiple × exit-multiple combination. Excel data tables (what-if) implement this.
Deep diveShow more details
Extended sensitivities
| Dimension | Range |
|---|---|
| FX risk | USD/EUR or GBP/EUR for international targets |
| Interest rate | SOFR + margin from 4% to 8% all-in |
| Multiple mix (buy-and-build) | add-on multiples 4–8x |
| Holding period | 3, 4, 5, 6, 7 years |
Excel implementation
- The main model is driven by "master cells" (entry multiple, exit multiple, EBITDA growth).
- The sensitivity sheet has "clone cells" that are varied via one-way or two-way data tables.
- IRR/MOIC are displayed via INDEX-MATCH or direct linkage.
Visualization
A tornado chart shows which variable has the largest IRR sensitivity. Typically exit multiple and EBITDA growth dominate — which makes them the most important investment assumptions.
Pitch tip
In the interview, stress that a "flat"-looking sensitivity (e.g. IRR between 18–22% across all scenarios) is a more robust investment than an extreme range (10–30%). Sponsor discipline means favoring downside-resistant investments, not maximum-upside cases.