# Walk Me Through an LBO in 6 Steps – The Ultimate Guide (2021)

Learn to **answer** **‘Walk Me Through an LBO’** like a pro and land your dream job in **Investment Banking**, **Private Equity**, or **Investment Management**. After reading our **Ultimate Guide**, you’ll understand:

- The
**6 Step Process**to answer**‘Walk Me Through an LBO’**or**‘Walk Me Through an LBO Model**.**‘** - The
**underlying idea behind**an**LBO Transaction.** **LBO Purchase Mechanics.**- LBO
**Debt**and**Equity**funding structures. **How to****calculate****Cash Flow**for an**LBO**analysis.- How to create an
**Exit Valuation**for an**LBO**analysis. - A
**shortcut**to quickly calculate**Internal Rate of Return (IRR)**.

Estimated reading time: 24 minutes

**TL;DR**

- Initially,
**keep your answer high-level**…and**let the Interviewer pull you into the details**. - ‘
**Walk Me Through an LBO**‘ and ‘**Walk Me Through an LBO Model**‘ are effectively the same question. **Private Equity**firms pursue**LBO transactions**, in which they use**Debt**to**amplify the returns**they can generate**for their investors**.- The core drivers of
**value creation**in an**LBO**are**Purchase Price**,**Cash Flow,**and**EBITDA Expansion.** **You can answer**this question**in just****six simple steps**, which we’ve listed below.

**A Little Context on ‘Walk Me Through an LBO’**

**‘Walk Me Through an LBO’** is one of the most **common Investment Banking Interview Questions**. It is also a **very common** question for **Private Equity Interviews**.

**Many students** aiming for top-tier Finance **simply memorize** **the information** needed to answer this question, **but quickly find themselves in a jam when they can’t explain the underlying concepts.**

In this article, **we walk through a 6-Step** **framework** you can use to answer this question, **but we also** provide **detailed explanations** for the **underlying concepts** behind each step.

We provide a full **LBO walkthrough** with a **thorough, Plain English explanation** of the **Leveraged Buyout Process. **

If you **read this article** and **fully absorb the content**, you’ll be able to **nail this Interview question** and **land your dream job**.

**What is an LBO**?

A **Leveraged Buyout **(or **‘LBO’ **for short) is a **transaction** where a **Private Equity** firm (**‘PE Firm’** or **‘Financial Sponsor’**) **purchases** a **Business** using **Debt** **to** **fund** a **significant portion** of the** Purchase Price**.

The **portion** of the **Purchase Price** not funded by **Debt** will come from the **PE Firm’s** **Investors, **which is called** ‘Sponsor Equity.’**

An **LBO Purchase** is very **similar to** how you would **buy a house with a mortgage** and **fund the remainder** of the **Purchase Price** with a **Down Payment**.

The **primary reason** **for using Debt** (as opposed to investing more Equity) is to **increase the potential for higher returns **for the** Private Equity firm’s Investors**.

As we will discuss, though, this **only works** if you have a **very stable** and **predictable business**.

While there are **quite a few moving pieces** to the **LBO structure**, as you’ll see in this article, **we can break** an **LBO Transaction** into **just six simple steps**.

**Variations of ‘Walk Me Through an LBO’**

The question **‘Walk Me Through an LBO’** can come in **many forms**. Below are the most common variations of this question:

1. Walk Me Through an *LBO Model*.

2. Walk Me Through an ** LBO Analysis**.

These are **both variants** of the **‘Walk Me Through an LBO’**, but the **Interviewer** is **usually looking** for a slightly **more in-depth**, **model-mechanics-focused** response.

In this article, we will walk you through the high-level explanation of **‘Walk Me Through an LBO**.” This will provide a **solid foundation** for answering **any version** of this **question**.

If you’d like a **deeper dive** into **LBO models** **(or Analysis)**, **check out** our **LBO Modeling Course**.

The **LBO Course** is **currently only available** to our **members** while we are **in our pre-launch phase**.

**Big Picture and Common Pitfalls: ‘Walk Me Through an LBO’**

Before we get into the **6-Step Framework**, let’s first address the **approach** to take **when answering** this question.

As is the case **when answering most Finance interview questions**, you want to **keep your answer very high-level at first** by **leading** with our **6 Step approach (explained below)**.

**Beyond that**, there are **three common mistakes** to avoid:

**Three Common Interview Mistakes**

**Mistake #1:** **Getting Lost in the Weeds** – I’m often asked something to the effect of, ‘With so many steps and pieces, How do you answer walk me through an LBO?”. The short story is that you need to create a few high-level anchors (i.e. the 6 Steps). These anchors give you something to hang onto, so you don’t get lost in the weeds.

**Mistake #2:** **Seeming Long-Winded** – If you give a long answer, it can seem like you don’t understand the concept and/or can’t give a succinct answer. Neither of those things reflects well on a prospective candidate.

**Mistake #3: Trying to Show off Your Knowledge** – Let’s face it, the person sitting on the other side of the table in an interview has a huge leg up on you in most cases. They have likely been on the job for years and can run circles around you. If you try to show off how much you know, they will just take it to the next level. It’s nearly impossible to win this game.

**You’ll want to avoid these common mistakes at all costs**.

Now, let’s dive into **‘Walk Me Through an LBO’!**

**‘Walk Me Through an LBO’ in 6 Steps**

**At first glance, answering ‘Walk Me Through an LBO’ can seem daunting…it doesn’t need to be**.

Let’s begin by laying out the **6 Steps** to answer this question at a **very high level**:

**The 6 Step Answer**

**How to Answer ‘Walk Me Through an LBO’ in 6 Steps**

**Calculate Purchase Price (or ‘Enterprise Value)**Determine the price to pay by multiplying the EV/EBITDA Multiple by the Target Company’s EBITDA. Then add any Financing or Advisory fees to arrive at the Total Uses of Funds.

**Determine Debt and Equity Funding**Determine the Debt available based on a multiple of EBITDA (typically 4-7x). Subtract Debt from the Total Uses Sources of Funds to determine the Sponsor Equity required to fund the Purchase.

**Project Cash Flows**Calculate Free Cash Flow (see below for details) over a five-year horizon, including Interest Expense.

**Calculate Exit Sale Value (or ‘Enterprise Value’)**Determine the sale price by multiplying an EV/EBITDA multiple by the Target Company’s EBITDA at Exit (typically Year 5). Note that the Exit EV/EBITDA multiple is typically assumed to be the same as the initial Purchase EV/EBITDA multiple.

**Work to Exit Owner Value (or ‘Equity Value’)**Subtract the cumulative Cash Flows (Step 3 above) from the Debt used to fund the deal (Step 2 above). This will give you the Debt that needs to be repaid when the Company is sold. Exit Equity Value is then calculated by subtracting the Debt repaid at Exit from the Exit Sale Value (‘Enterprise Value’). This is the money returned to the Investors in the deal.

**Assess Investor Returns (IRR or MOIC)**Use the Exit Equity Value and the initial Sponsor Equity to calculate the Internal Rate of Return and the Multiple of Invested Capital. See below for detailed calculations (and a helpful shortcut).

**In the sections below, **we’ll walk through** each of these steps **in** extensive detail.**

**We’ll also explain the underlying idea behind each step.**

**Preface: Finding an LBO Candidate**

**Before** we can execute **an LBO Purchase**, **we need** to find **an attractive LBO candidate**.

Because the **Company acquired** in an **LBO** will typically have a **meaningful Debt (and thus Interest) load**, we need a **steady** and **cash generative** **Business**.

Fortunately, there are a **few common criteria** we look for **in an LBO Target**, which we’ve **listed below**:

**Criteria for the Ideal LBO Candidate**

While this **isn’t technically part of** our **6-Step** Framework, this can **often** be **a precursor** to the question.

So, it is **helpful** **to have **this **in the back of your mind** **if** the **Interviewer** **asks** you how to **find an LBO candidate**.

**Walk Me Through an LBO Step #1: Purchase Price**

Once we **have an LBO target** in mind, we **need to calculate** the target Company’s **Purchase Price** (or **Enterprise Value**).

**How to Calculate the LBO Purchase Price**

**In the ****LBO world**, the **most commonly used** **approach** to **calculate** the **Purchase Price** is to use **peer multiples**.

The most common multiple is an **Enterprise Value / EBITDA** (or **EV/EBITDA**) multiple.

Alternatively, if a **Business has** a **higher level** of **Capital Intensity**, you might **instead** use **EV/EBITDA – Capital Expenditures**.

**This approach** helps to **normalize** across **Businesses** with **high reinvestment needs**.

**With either approach**, we would **take the Peer Multiple** and **multiply** it by the **Acquisition Target’s** **EBITDA (**or** EBITDA – Capital Expenditures)** to arrive at the **Purchase Price (**or** Enterprise Value)**.

**How to Calculate Purchase Price for a Public LBO Target**

If the **Acquisition Target Company** is **Publicly Traded**, we will take a **slightly different** route to arrive at **Enterprise Value**.

**Instead of** applying an **EV/EBITDA multiple** to arrive at **Enterprise Value**, we **start at Share Price** and work to **Enterprise Value**.

**Below are the key steps in this process:**

1. **Calculate Market Capitalization: **Price Per Share * Fully Diluted Share Count (using the **Treasury Stock Method**).

2. Subtract any** Excess Cash**.

3. Add all **Outstanding Debt**.

**For a deeper dive** into the **concepts behind** these **calculations**, **check out** our **Enterprise Value vs. Equity Value** article.

**Transaction and Advisory Fees**

**In addition** to paying the **Purchase Price** (**Enterprise Value**) of the **LBO Target** **Company**, we must **also pay Fees** to close the deal.

The **two primary types of fees** we need to pay are:

**Advisory Fees**– payments to**Investment Bankers**,**Accountants**,**Consultants**, and**Lawyers**.**Financing Fees**– payments to**Lenders**in return**for providing Debt**to fund the deal.

To **wrap up Step #1**, let’s lay out the **‘Uses of Funds’** for the **LBO purchase** of the Company.

In short,** to calculate** the **total payment** (or **‘Uses of Funds’**) needed **to close the deal**, we have to include the **Purchase Price** **plus** our **Fees** paid **to Lenders** **and** **Advisors**.

**LBO Value Creation Driver #1: Purchase Price**

Before we continue, let’s **quickly discuss LBO Value Drivers**. If you would like to take a deeper dive into these drivers, check out our **LBO Value Creation Drivers** video.

**In any LBO transaction,** there are a **variety of factors** that will impact the transaction.

However, **in the end**, the **value created in an LBO** **boils down** to just **three factors**: **Purchase Price**, **Cash Flow,** and **EBITDA Growth** (which drives the Exit Sale Price).

The **first** LBO **Value Creation Driver**, **Purchase Price**, **creates value** by **increasing** the **potential for growth** **in the value** of the **Business** **over the course** of the **LBO**.

A **lower Purchase Price** **may** also **result** in a **lower required Equity Investment** at **Purchase**.

Now that we’ve calculated the **Purchase Price** (including Fees), let’s jump to **Step #2** and **determine** **how to fund** the **LBO transaction.**

**Walk Me Through an LBO Step #2: Debt and Equity Funding**

**Private Equity **firms** fund LBO transactions** with a **combination** of **Debt and Equity**.

**Let’s look** at how each of these ‘**Sources of Funding’** functions **in a little more detail**.

**LBO Structure: Debt Funding**

As previously mentioned, a **PE Firm** typically funds an **LBO purchase** with a **significant amount of Debt**, **similar to** the **structure** used to fund the **purchase of a Home**.

The **level of Debt** in an **LBO** transaction is typically **a function of** the Business’ **EBITDA generation**. It’s worth noting that **Debt levels** are generally expressed as **multiples (or ‘Turns’) of EBITDA** in the **LBO world**.

The **level of Debt** for an **LBO** **can vary** from as **low as** **1-2x EBITDA** to over **10x EBITDA**.

For **more on historical Debt levels** in **LBOs**, check out the **Bain Annual Private Equity Report**.

**Unlike** the structure for a **Home purchase**, however, the **LBO Debt structure** is typically composed of **Loan** and **Bond Debt** (as opposed to a Mortgage).

**LBO Debt Funding Source #1: Loan Debt**

The **primary Source** of **Funding** for the **vast majority** of **LBO** **transactions** is **Loan Debt**.

**Loan Debt** typically comes **in a few forms**:

**Revolving Credit Facility (or ‘Revolver’)**– a**short-term**borrowing facility that the Company can**utilize for borrowings**on an**as-needed**basis.**First-Lien Term Loan**– a**first-priority Loan**that**typically requires**some**principal repayment****(‘Amortization’)**over the course of the Loan.**Second-Lien Term Loan**– a**second-priority**(and thus higher cost)**Loan**.

*Side Note:** It’s worth mentioning that ‘Loan Debt’ is often referred to as ‘Bank Debt’ because back in the day, this type of Debt was primarily offered by Banks.*

*Today**, there are*

**many specialty, non-bank**lenders that offer Loan Debt, but the name has stuck.**LBO Debt Funding Source #2: Bond Debt**

For **larger deals**, **Private Equity** firms may **seek funding** from the **Bond market**.

The **Bonds** raised for **LBO transactions** are **quite different** from **run-of-the-mill** Bonds **issued by large, high-quality Companies** like Microsoft, Ford, or Kellogg’s.

**LBO Bonds** are referred to as **‘High Yield’** (or **‘Junk’**) **Bonds** because they are **much riskier** given the **level of Debt** typically used in an **LBO transaction**.

Because of their **riskiness**, they **carry** a **much higher cost** than a **traditional** **Bond**.

**LBO Debt Funding Source #3: Mezzanine Debt**

The last source of **Debt** funding is a **catch-all** for any other type of **Debt **that doesn’t neatly fit into the categories above.

**Like a Mezzanine floor in a building, Mezzanine Debt** sits **between** the **Debt** and **Equity** in an LBO structure. It **typically has** **characteristics **of both **Debt** (i.e. Interest Payments) and **Equity** (i.e. Upside in the Investment).

If you’d like to take a **Deeper Dive** into **LBO Debt structures**, check out the following **primers** from the **leading provider** of **LBO Debt** information, **S&P Global LCD**:

**LBO Structure: Equity Funding**

**Whatever can’t be funded with Debt **must be **funded** with an **Investment** (or **‘Sponsor Equity’**) by the **Private Equity** **Firm **(or **‘Financial Sponsor’**).

In short, the **Private Equity** firm is the **funding backstop**.

If we were to **rewind** to the **early days** of **LBOs** in the **1970s to the 1990s**, we would see **LBOs funded** with **as little as 10% Equity**.

Over time **Lenders** have pushed **Equity funding requirements higher** to ensure the **Private Equity** firms **have** meaningful **‘skin in the game.’**

Today, the **Sponsor ‘Equity Contribution’ typically composes at least 40%** or more **of the Purchase Price** in an **LBO transaction**.

**For more on this topic**, check out this **article** from the **Wall Street Journal**.

**To wrap up** this step, let’s now lay out our total **‘Sources of Funds’** for the LBO.

Once we’ve pinned down our **Equity** and **Debt** funding for an **LBO transaction**, we **move on** to calculating **Cash flow** in **Step #3.**

**Walk Me Through an LBO Step #3: Calculate Cash Flows**

The **typical time horizon** for most **LBOs** is **five years**, so that’s **the time horizon** over which we’ll **need to** **project** out **Cash Flows**.

But we need to be a bit more specific. If you’ve read our **‘Walk Me Through a DCF’** guide, you’ve learned how to calculate **Unlevered Free Cash Flow**.

With an **LBO**, we’re taking a **similar approach**, **but** given that we’ll be **taking on Debt**, we **need to incorporate** the impact of **Interest** **Payments**.

**Below** are the **components** needed to calculate **Free Cash Flow** for an **LBO Analysis**:

**How to Calculate Free Cash Flow for an LBO**

**As previously mentioned**, we **need to project** this **Cash Flow** over a **five-year horizon**.

**LBO Value Creation Driver #2: Cash Flow**

**Cash Flow** is the **second** **primary value driver** in an **LBO transaction**.

**Cash Flow** **creates value** in an **LBO** in two ways:

1. Debt Paydown

2. Invest in High Return on Capital opportunities

Both of these uses of cash increase returns to **Investors** in the LBO transaction.

**How Debt Paydown Creates Value**

**Debt paydown** **reduces** the level of **Debt** the **Private Equity firm** needs to **repay when it sells** the **Business**.

The **lower level of debt** **at Exit increases** the **Equity available** to the **Private Equity Investors**.

The **process above** is **similar to** how you would receive a **higher payout** if you **pay down** more of your **mortgage** **before selling a house**.

We will dig into this in more detail **in Step #5**.

**How Reinvestment Creates Value**

**Alternatively**, a **Private Equity firm** could **reinvest the excess cash** in **high return on capital** **reinvestment opportunities**.

The **goal** would be to **grow the Business** and thus **EBITDA.**

As we will see in **Step #4**, growing **EBITDA** **drives **a** higher Exit Enterprise Value **at **Sale** and thus a **higher return** for the **Private Equity firm**.

**Once we’ve made our Cash Flow projections**, we can **proceed** to **calculating Exit Enterprise Value** in **Step #4 **of ‘Walk Me Through an LBO.’

**Walk Me Through an LBO Step #4: Exit Enterprise Value**

**As mentioned** in **Step #3**, the **typical time horizon** for an **LBO** is **five years**.

So, **after** we’ve made **five years** of **Cash Flow projections**, we’ll set up an **Exit Analysis**.

In an **Exit analysis**, we assume that the **Private Equity** firm **puts **the **Business** **up for** **sale** to another **Buyer**.

As with our **Purchase Price** analysis in **Step #1**, **Buyers** will typically **base** their **purchase** on the **EBITDA** of the **Business** and **relevant Peer Valuation Multiples** (again **EV/EBITDA** or **EV/EBITDA – Capital Expenditures**).

Based on the above, we can see that **higher EBITDA** and **higher EV/EBITDA** **multiples** will **increase the Business’s Sale Value**.

**What is the Right Exit Multiple Assumption?**

It is worth noting, however, that **when analyzing** an **LBO investment**, **most Private Equity** investors assume that the **Exit Multiple** **at Sale** will be the **same or less** than the **Purchase Valuation multiple.**

**PE Firms** make this **assumption** **due to conservatism **and because** PE Firms** have been **burned in past cycles** (e.g. the 2008 crisis) by **assuming** **Exit Multiples** would continue to **expand**.

**Value Creation Driver #3: EBITDA Expansion**

**EBITDA** **expansion** is the **third** and final **LBO Value Driver**.

**Because** the **Exit Multiple** is **typically held constant** (vs the Purchase Multiple), the **Exit Valuation** is **primarily dependent** on **EBITDA** **Expansion** (or **Contraction**).

This is because **as EBITDA expands** (holding the Exit Multiple constant), the **Sale Value** at **Exit** also **increases**.

**Once we’ve calculated** the **Exit Valuation**, **based on** our **Exit Year EBITDA** and the appropriate **Valuation Multiple**, we can **move** **to Step #5. **

In **Step #5 **we’ll **determine** how much of the **Exit Price** **returns** to the **Private Equity** firm’s **Investors**.

**Walk Me Through an LBO Step #5: Exit Equity Value**

When a **Private Equity Firm** **sells** a **Business**, they **don’t** **keep all of the proceeds** because **Lenders** must be **repaid first**.

On a **more positive note**, they do get to **keep** any **excess Cash** on the **Balance Sheet**.

To calculate the **Exit Equity Value** that would return to the **Private Equity** firm, we would:

1. Calculate **Exit Enterprise Value** (from **Step #4**).

2. **Subtract** the **total Principal value** of all **outstanding Debt**.

3. **Add** any **excess Cash** on the **Balance Sheet**.

The **dollars** that **remain** after **completing this calculation** are what the **Private Equity** firm **will keep** (and thus return to investors.

**Quick Note: ‘Gross’ vs. ‘Net’ Return**

**When answering** this question, the **Interviewer** may **ask** about **‘Gross’** vs. **‘Net’** Returns.

Interviewers ask this because **Private Equity firms** **don’t return** the **entire Exit Equity Value** to their **Investors**.

Instead, they will **typically return** the **Exit Equity Value** ** minus** a

**20% cut of any Profit**(called

**‘Carried Interest’**) made

**over the**

**original Investment**.

So, the **Exit Equity Value** reflects a **Gross Return**, whereas the **Exit Equity Value** **minus** **Carried Interest** reflects the **‘Net’** dollars **returned** to the **Investors** in an **LBO**.

You **typically won’t need** to go into **this level of detail** for a **basic** **‘Walk Me Through an LBO’** exercise. But we **wanted** to **address **the topic, so you **aren’t caught off guard**.

**Now,** we can move to **the final step!**

**Walk Me Through an LBO Step #6: Investor Returns**

To **calculate the returns** to **Investors** in an **LBO deal**, **Private Equity firms** primarily **rely** on **two metrics**:

1. **Internal Rate of Return (‘IRR’)** – reflects the **time-weighted** **Return** to Investors in the deal.

2. **Multiple of Invested Capital (‘MOIC’)** – reflects **dollars** **returned** vs. **dollars invested**.

**How to Calculate Internal Rate of Return**

There are **two methods** to **calculate** an **Internal Rate of Return**: the **Simple CAGR** and the **IRR Formula** or **Function**.

If there are **only two cash** flows (**Dollars Invested +** **Dollars Returned**), we can **use** the **Compounded Annual Growth Rate (or ‘CAGR’) formula,** which we’ve laid out below:

If there are **more** than **two cash flows**, we’ll need to use the **IRR Function** in **Microsoft Excel** because the **math** gets a bit **more complicated**.

**How to Calculate Multiple of Invested Capital**

Calculating the **Multiple of Invested Capital** is much easier. We simply divide the **Exit Equity Proceeds** (**‘Dollars Returns’**) by the **Initial Sponsor Equity Investment** (**‘Dollars Invested’**).

It is worth noting that **Multiple of Invested Capital** has several alternative names: **Multiple of Money** (**MOM)**, **Multiple of Investment** (**MOI**), and **Cash on Cash Return** (**CoC**). **Each** of these is the **same as MOIC**.

**Which is better: IRR or MOIC?**

A **common question **that arises at this point is, **‘Why do you use two return metrics?’**.

**Pros and Cons: Internal Rate of Return**

The **short story** is that **IRR** is a **time-weighted return**, but things like an **early exit** (i.e. sooner than five years) can **easily distort** an **IRR**.

**IRR **also **doesn’t capture** the **absolute dollars** returned to **Investors**.

For example, a **Private Equity** firm **could make** very **high IRR** investments on **tiny deals** but **not return significant absolute dollars**.

Since **Investors** pay **PE** **firms** based on** absolute dollars returned,** this wouldn’t be a positive outcome for the **PE Firm Partners**.

**Pros and Cons: Multiple of Invested Capital**

By contrast, **MOIC** simply **weighs** **dollars invested **versus **dollars returned**.

MOIC is **not ideal** given that it is not **time weighted**.

However, **MOIC** **can be paired** with **dollars invested** to **quickly determine** the **absolute dollars** **returned** to a **Private Equity firm** when the firm sells an **LBO Investment**.

As a result, **MOIC (multiple of dollars returned)** is often **used in tandem** with **IRR (time-weighted)**. By using both metrics, we get a more **holistic view** of the potential return of an **Investment**.

**Cheat Code: MOIC to IRR Calculation Conversion**

If you’re thinking, **‘How in the world will I do an IRR calculation in my head during an interview?’**, don’t sweat it.

**You don’t have to!**

Fortunately, there are **two solid rules of thumb for **both** Three-Year **and** Five-Year IRR calculations.**

As we can see **in the tables below**, we can **approximate** an **IRR based on** the **MOIC **for a deal:

**Table to Convert MOIC to IRR**

Now that we’ve **completed Step #6** of ‘Walk Me Through an LBO’, **let’s wrap this up**!

**Wrap-Up**

**Having a solid answer** to **‘Walk Me Through an LBO’** is a **core** part of prepping for **Technical Interview Questions** for **Investment Banking**, **Private Equity,** or **Investment Management**.

Hopefully, after reading through this, you have a much better understanding of both the **6-Step approach** ** AND** the

**underlying ideas**behind the question.

**If you follow the approach laid out above and deeply grasp the underlying concepts behind each step, you’ll be in great shape!**

**Interview Question Video: ‘Walk Me Through an LBO’**

- If you’d like a video overview of this topic, check out our
**Walk Me Through an LBO**video from our Founder,**Mike Kimpel**, with a complete walkthrough of how to answer the question. - Also, check out our
**YouTube channel**here for more**Interview Question Reviews**for common questions like**Walk Me Through a DCF**,**How does $10 of Depreciation Flow Through the 3 Statements**, and**When to use EV/Revenue Multiples**.

**About the Author**

**Mike Kimpel** is the **Founder and CEO** of **Finance|able**, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.

He is an **Adjunct Professor** in **Columbia Business School’s Value Investing Program** and leads the Finance track at **Access Distributed**, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.

**Frequently Asked Questions (FAQ)**

*What is an LBO?*A Leveraged Buyout (or ‘LBO’ for short) is a transaction where a Private Equity firm (‘PE’ or ‘Financial Sponsor’) purchases a Business using Debt to fund a significant portion of the Purchase Price.

*How does an LBO work? or How to do an LBO?*An LBO is typically executed by a Private Equity firm (or ‘Financial Sponsor’). The firm funds a large portion of the Purchase Price with Debt, and the remainder is funded by the Private Equity firm’s Investors.

*How to answer, ‘Walk Me Through an LBO’?*The key with this question is to begin at a high level, have a solid framework to keep you out of the weeds (see our article for a simple, 6-step Framework), provide succinct answers, and avoid showing off too much knowledge in your initial response.

*How to build an LBO Model? or How to do an LBO Analysis?*Both questions above are essentially the same question as ‘Walk Me Through an LBO.’ An Interviewer will typically ask you to go into more detail than with the standard question in some cases.

**Aiming for Investment Banking, Private Equity, or Investment Management? Check This Out!**

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