LBO Model Framework AI Prompt

Build a leveraged buyout (LBO) model framework for evaluating this acquisition.

Target company: {{target}}
Financials: {{financials}}
Entry assumptions: {{entry_assumptions}}
Holding period: {{holding_period}} years

1. Sources and Uses of Funds:
   Sources: Senior debt + Mezzanine debt + Sponsor equity = Total
   Uses: Purchase price (EV) + Transaction fees + Financing fees = Total
   Sources must equal Uses.

   Entry multiples:
   - Entry EV/EBITDA: {{entry_multiple}}x
   - Purchase price = Entry EV/EBITDA x LTM EBITDA
   - Debt/EBITDA: {{leverage}}x (split between senior secured and subordinated)

2. Debt schedule:
   For each debt tranche:
   - Beginning balance, interest expense, cash sweep / amortization, ending balance
   - Cash sweep: excess cash flow used to pay down highest-cost debt first
   - Revolver: drawn when operating cash flow is insufficient to meet obligations
   - PIK vs cash interest: PIK increases principal (compounds), cash interest reduces free cash

3. Free cash flow and debt paydown:
   EBITDA - Interest - Taxes - Capex - Change in NWC = FCF available for debt paydown
   - Project EBITDA with operating improvement thesis assumptions
   - Tax shield: interest expense x tax rate reduces cash taxes
   - Debt paydown waterfall: senior debt first, then mezz, then any remaining

4. Exit analysis:
   Exit EV = Exit EBITDA x Exit Multiple
   Exit Equity Value = Exit EV - Remaining Debt
   Sponsor proceeds = Exit Equity Value x Sponsor ownership %

5. Returns calculation:
   - Money-on-Money Multiple (MoM): Proceeds / Equity invested
   - IRR: solve for the rate that makes NPV of cash flows = 0
   - Target returns: MoM > 2.5x, IRR > 20% for typical PE
   - Returns bridge: attribute IRR to EBITDA growth, multiple expansion, leverage, and dividends

6. Sensitivity tables:
   - IRR and MoM: entry multiple vs exit multiple (3x3 or 5x5)
   - IRR and MoM: entry multiple vs EBITDA growth rate

Return: Sources and Uses table, debt schedule, FCF projection, exit analysis, returns calculation, and sensitivity tables.