HomeCFACFA Level 2CFA Level 2 | Alternative Investments: The Leveraged Buyout (LBO) Model

CFA Level 2 | Alternative Investments: The Leveraged Buyout (LBO) Model

  • June 18, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 2
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CFA Level 2

Topic: Alternative Investments

Reading: Private Equity Valuation

 

The leveraged buyout (LBO) Model is used to determine the maximum price that can be paid to a seller and at the same time meet the expected return of the providers of financing.

In this video, I illustrate with an example of an LBO investment using equity, preference shares, and senior debt, with a 6-year exit, with the objective of estimating the internal rate of return (IRR) for the management and Private Equity fund. There will be no distributions to investors until exit.

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