We begin our LBO model by creating the target’s P&L as described in the section on M&A modeling. We won’t bother to retrace those steps here. We have also begun to enter some basic inputs to our LBO tab in the spreadsheet below to get us started, and will be adding many more inputs as we require them.
Note that on the LBO tab, we are assuming a specific premium to the current share price to compute a single transaction price. Recall that in the M&A model we built, we considered a range of transaction prices. We are using a single theoretical transaction price here because using a range would make the LBO model far too complex. However, you can compute returns (e.g. IRRs) for a range of premiums using Excel’s tables later.