Module IV· Interview EssentialsBasic
Question
Walk me through an LBO — how would you answer this classic question in 2–3 minutes?
Answer
5-step answer (2 min)
- ENTRY — Sponsor buys the target at EV (e.g. 10x LTM EBITDA = $500m). ~50% Debt + ~50% Equity. Sources & Uses balances; equity is the plug.
- FORECAST: 5-year plan. EBITDA grows (50 → $70m). Cash flow → debt paydown (Sweep + Mandatory).
- DEBT EVOLUTION: Net Debt falls (250 → $100m) through FCF sweeps.
- EXIT: Sale at a stable multiple (10–11x × 70 = 700–770 EV). Equity Value = EV − Net Debt = $600–670m.
- RETURNS — Initial equity ~250 → exit ~600+ over 5 yrs → ~20% IRR, 2.4x MOIC. Drivers: EBITDA growth 50%, debt paydown 40%, multiple 10%.
Pitch tip
Be able to recite it in 2 minutes — THE most important LBO question. Practice with a stopwatch.