LBO Model - Step 2

This step of the leveraged buyout (LBO) model builds out the target company's operating projections so you can see how much cash the business will generate to service its new debt load. The video demonstrates how to forecast revenue growth, EBITDA margin, depreciation, capital expenditures, and changes in working capital across a five-year hold period, then flow those items into projected free cash flow. These operating forecasts are the engine of the LBO, because the sponsor's equity return depends on how much debt the business can pay down and how much EBITDA has grown by exit.