Paper LBO
LBOA simplified buyout calculation done by hand in an interview, from entry assumptions to an approximate return.
Also written: lbo model
A paper LBO asks you to build a buyout in your head and on paper: entry price from an EBITDA multiple, a sources and uses split, a few years of EBITDA growth and debt paydown, an exit at some multiple, and a resulting MOIC and IRR.
It is testing structure and composure rather than arithmetic. The interviewer wants to see that you know what drives the answer and that you can keep talking while you calculate, so state each assumption aloud as you make it.
Round aggressively and say you are rounding. Working with 100 of EBITDA, a 10.0x multiple and 60% leverage keeps the numbers tractable, and a clean approximate answer delivered confidently beats a precise one delivered silently.
Know the MOIC to IRR conversions cold so you can sanity check instantly: 2.0x over five years is about 15%, 2.5x about 20%, 3.0x about 25%.
Worked example
Given: 100 of EBITDA, 10.0x entry, 60% debt, EBITDA to 130 over five years, 250 of debt repaid, exit at 10.0x.
Entry EV 1,000, debt 600, equity 400. Exit EV 1,300, debt 350, equity 950. MOIC 2.4x.
2.4x over five years is between the 2.0x that gives 15% and the 2.5x that gives 20%, so call it roughly 19%. Say the rounding aloud rather than reaching for precision you cannot compute in your head.