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The Paper LBO | Step-by-Step Tutorial
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Short-Form LBO Model Course | 4-Part Series
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Basic LBO Modeling Test
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Standard LBO Modeling Test
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Advanced LBO Modeling Test
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Private Equity Interview | Top 25 Technical Questions
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Internal Rate of Return | IRR Calculator
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Multiple on Invested Capital (MOIC)
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All Private Equity (LBO) Content
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Ability to Pay Analysis (ATP)
Ability to Pay Analysis (ATP)What is Ability to Pay Analysis? Ability to Pay Analysis (ATP) is a method used by private equity investors to guide valuation and determine the affordability of a potential acquisition. Such an analy...
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Acquisition Financing
Acquisition FinancingWhat is Acquisition Financing? Acquisition Financing refers to the initial capital sources obtained to fund the purchase of a business, i.e. the mix of debt and equity in the capital structure.
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Add-On Acquisition
Add-On AcquisitionWhat is an Add On Acquisition? An Add On Acquisition in private equity refers to the purchase of a smaller-sized target by an existing portfolio company, where the acquired company is integrated into...
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Advanced LBO Modeling Test
Advanced LBO Modeling TestAdvanced LBO Modeling Test: Practice 3-Hour Tutorial The following Advanced LBO Modeling Test training guide provides a step-by-step tutorial to complete a 3-hour practice LBO modeling test of advance...
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Assets Under Management (AUM)
Assets Under Management (AUM)What is Assets Under Management? Assets Under Management (AUM) refers to the market value of the capital contributed to a fund, from which an institutional firm invests on behalf of its clients, i.e....
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Basic LBO Modeling Test
Basic LBO Modeling TestWhat is an LBO Model Test? The LBO Model Test refers to a common interview exercise given to prospective candidates during the private equity recruiting process. Usually, the interviewee will receive...
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Cash Sweep
Cash SweepWhat is a Cash Sweep? The Cash Sweep refers to the optional prepayment of debt using excess free cash flows in advance of the originally scheduled repayment date. Once all mandatory payments have been...
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Cash-Free Debt-Free (CFDF)
Cash-Free Debt-Free (CFDF)What is Cash Free Debt Free? Cash Free Debt Free is a transaction structure where the buyer does not assume any debt on the seller’s balance sheet, nor gets to keep any leftover cash.
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Corporate Takeover
Corporate TakeoverWhat is Corporate Takeover? A Corporate Takeover describes an acquisition of a company, in which the acquirer obtains a controlling stake in the target.
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Deleveraging
DeleveragingWhat is Deleveraging? Deleveraging refers to the reduction of debt by a company in order to lessen the degree of financial leverage. In the specific context of a leveraged buyout (LBO), deleveraging d...
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Distressed Buyout Guide
Distressed Buyout GuideWhat is a Distressed Buyout? The Distressed Buyout strategy describes private equity firms accumulating a majority stake in a distressed company under the premise that a turnaround is feasible, i.e. t...
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Distribution to Paid-In Capital (DPI)
Distribution to Paid-In Capital (DPI)What is Distribution to Paid-In Capital? Distribution to Paid-In Capital (DPI) measures the cumulative proceeds returned by a fund to its investors relative to its paid-in capital.
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Dividend Recap
Dividend RecapWhat is a Dividend Recap? A Dividend Recap is a strategy utilized by private equity firms to increase their fund returns from a leveraged buyout (LBO). In a dividend recap, formally called a “dividend...
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Dry Powder
Dry PowderWhat is Dry Powder? Dry Powder is a term referring to capital committed to private investment firms that still remains unallocated. Under the specific context of the private equity industry, dry powde...
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Financial Buyer
Financial BuyerWhat is a Financial Buyer? A Financial Buyer in M&A is defined as an acquirer that purchases a company as an investment to achieve a targeted return. Unlike strategic acquirers, financial buyers a...
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Fund of Funds (FOF)
Fund of Funds (FOF)What is Fund of Funds (FOF)? A Fund of Funds (FOF) refers to a pooled investment vehicle in which capital commitments from investors are allocated to a predetermined number of funds with different str...
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Growth Equity Primer
Growth Equity PrimerWhat is Growth Equity? Growth Equity is an investment strategy oriented around acquiring minority stakes in late-stage companies exhibiting high growth with significant upside potential in expansion,...
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Illiquidity Discount
Illiquidity DiscountWhat is Illiquidity Discount? Illiquidity describes assets that cannot be readily sold in the open market — which usually warrants a discount to be attached to the valuation due to the absence of mark...
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Internal Rate of Return (IRR)
Internal Rate of Return (IRR)What is IRR? The Internal Rate of Return (IRR) is defined as the compounded rate of return on an investment. Given a specified range of dates, the IRR is the implied interest rate at which the initial...
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J-Curve
J-CurveWhat is the J-Curve? The J-Curve illustrates the timing of the receipt of proceeds by a private equity fund’s limited partners (LPs).
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LBO Analysis on a Cocktail Napkin
LBO Analysis on a Cocktail NapkinBasics of the LBO Model: “Cocktail Napkin” LBO Analysis As many of you know, we conduct LBO Modeling boot camps across the globe. We get into relatively sophisticated modeling techniques and teach pra...
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LBO Candidate Characteristics
LBO Candidate CharacteristicsWhat Makes a Good LBO Candidate? LBO Candidates are characterized by strong, predictable free cash flow (FCF) generation, recurring revenue, and high profit margins from favorable unit economics.
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LBO Returns Attribution Analysis
LBO Returns Attribution AnalysisWhat is an LBO Returns Attribution Analysis? An LBO Returns Attribution Analysis quantifies the contribution from each of the main value creation drivers in private equity investments. The framework f...
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LTM EBITDA
LTM EBITDAWhat is LTM EBITDA? LTM EBITDA is a company’s earnings before interest, taxes, depreciation, and amortization across the trailing twelve months.
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Management Buyout (MBO)
Management Buyout (MBO)What is Management Buyout? A Management Buyout (MBO) is a leveraged buyout transaction structure in which a significant portion of the post-LBO equity contribution comes from the prior management team...
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Minority Investment
Minority InvestmentWhat is a Minority Investment? A Minority Investment is a non-controlling investment (<50%) into a company’s equity, in which the firm does not possess majority ownership.
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Multiple Expansion
Multiple ExpansionWhat is Multiple Expansion? Multiple Expansion is when an asset is purchased and later sold at a higher valuation multiple relative to the original multiple paid. If a company undergoes a leveraged bu...
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Multiple of Money (MoM)
Multiple of Money (MoM)What is Multiple of Money? The Multiple of Money (MoM) compares the amount of equity the sponsor takes out on the date of exit relative to their initial equity contribution. Otherwise, referred to as...
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Multiple on Invested Capital (MOIC)
Multiple on Invested Capital (MOIC)What is MOIC? MOIC stands for “multiple on invested capital” and measures investment returns by comparing the value of an investment on the exit date to the initial investment amount. The MOIC metric...
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PIK Interest
PIK InterestWhat is PIK Interest? PIK Interest, or “paid in kind” interest, is a feature of debt that allows interest expense to be accrued for a set number of years, rather than being paid in cash in...
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Preferred Stock (Convertible vs. Participating Returns)
Preferred Stock (Convertible vs. Participating Returns)What is Preferred Stock? Preferred Stock is a hybrid form of financing representing ownership in a company, combining features of debt and common stock.
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Private Equity Certification
Private Equity CertificationTop Private Equity Masterclass Certification The Private Equity Masterclass is a private equity certification by Wall Street Prep designed to help prepare candidates recruiting for competitive roles i...
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Private Equity Interview Questions
Private Equity Interview QuestionsTop 25 Private Equity Interview Questions In the following post, we’ve compiled a comprehensive list of the Top 25 Private Equity Interview Questions to help you prepare for the recruiting proce...
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Private Equity Is Top Choice of Young Wall St. Bankers
Private Equity Is Top Choice of Young Wall St. BankersIf you are curious about exit options after investment banking, Dealbook has given us some numbers for 2014. 36% of junior investment bankers who started two-year jobs in 2012 have now joined private...
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Private Equity Salary
Private Equity SalaryWhat is the Salary in Private Equity? Private Equity Salaries are a major consideration for those considering an exit to the buy-side. In this article, we’ll provide salary ranges of private equity pr...
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Privatization
PrivatizationWhat is Privatization? Privatization, or a “take-private” transaction, refers to the acquisition of a publicly-traded company where the target’s shares are de-listed from a public exchange post-closin...
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Rollover Equity
Rollover EquityWhat is Rollover Equity? Rollover Equity refers to the exit proceeds reinvested by a seller into the equity of the newly formed entity post-acquisition. An equity rollover is therefore designed to ali...
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Secondary Buyout (SBO)
Secondary Buyout (SBO)What is a Secondary Buyout? A Secondary Buyout, or “sponsor-to-sponsor deal”, is an exit strategy in private equity wherein the investment (i.e. the portfolio company) is sold to another f...
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Shareholder Loan
Shareholder LoanWhat is a Shareholder Loan? A Shareholder Loan is a form of specialized financing with features that blend debt and equity, most often structured with a PIK interest component.
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Short-Form LBO Model
Short-Form LBO ModelWhat is a Short-Form LBO Model? The following Short-Form LBO Model tutorial will walk through building a simple LBO model step-by-step in Excel, with a template provided. Throughout the tutorial, a ba...
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Simple LBO Model
Simple LBO ModelSimple LBO Model: Video Tutorial In this video tutorial, we'll build a leveraged buyout (LBO) model, given some operating and valuation assumptions, in Excel. The goal of this video is to show you tha...
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Sources and Uses of Funds
Sources and Uses of FundsWhat are Sources and Uses? The Sources and Uses of Funds is a table summarizing the total amount of funding required to complete an M&A transaction, such as a leveraged buyout (LBO).
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Standard LBO Modeling Test
Standard LBO Modeling TestWhat is an LBO Modeling Test? The Standard LBO Modeling Test is the most common type of modeling exercise an interviewee will be given during the private equity recruiting cycle. The LBO modeling test...
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Strategic Buyer
Strategic BuyerWhat is a Strategic Buyer? A Strategic Buyer describes an acquirer that is another company, as opposed to a financial buyer (e.g. private equity firm). The strategic buyer, or “strategic” for short, m...
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The Paper LBO
The Paper LBOWhat is Paper LBO? The Paper LBO is a common exercise completed during the private equity interview process, for which we’ll provide an example step-by-step practice test along with a walkthroug...
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The Rule of 72
The Rule of 72What is the Rule of 72? The Rule of 72 is a shorthand method to estimate the number of years required for an investment to double in value (2x). In practice, the Rule of 72 is a “back-of-the-env...
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Total Value to Paid-In Capital (TVPI)
Total Value to Paid-In Capital (TVPI)What is TVPI? The Total Value to Paid-In Capital (TVPI) compares the distributions returned to investors by a fund and the residual value not yet realized relative to the contributed paid-in capital.
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Unitranche Debt
Unitranche DebtWhat is Unitranche Debt? Unitranche Debt is structured as a single financing arrangement comprised of a roll-up of separate tranches, i.e. first and second lien debt, into a single credit facility.
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Walk Me Through an LBO Model
Walk Me Through an LBO ModelWalk Me Through an LBO Model? Understanding the steps to build an LBO model is necessary to perform well in private equity interviews and on LBO modeling tests.