Leveraged buyout

A leveraged buyout (LBO) is the purchase of a company financed mostly with borrowed money secured on the target's own cash flows, so a small equity investment can control the whole firm.

ByHoang TruongUpdated July 11, 2026

See it move

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A sponsor buys a company for €100,000,000, funded with €30,000,000 of equity and €70,000,000 of debt. Over five years, €20,000,000 of debt is repaid from the company's own cash flow, leaving €50,000,000 of debt at exit. Sold at the same €100,000,000 enterprise value, exit equity is €50,000,000 — a 1.67x multiple on the €30,000,000 invested.

Where it fits

SubjectCorporate FinanceAdvancedTopicCapital Structure & LeverageAdvancedTopicBusiness Valuation & DCFAdvanced

The formula

LaTeX

EQ_{exit} = EV_{exit} - D_{exit}

Variables

$E Q_{e x i t}$: Exit equity value (€)
$E V_{e x i t}$: Exit enterprise value (€)
$D_{e x i t}$: Debt outstanding at exit (€)

Converts the total business value at exit into the value that belongs to the equity holder, after remaining debt is repaid.

LaTeX

MOIC = \frac{EQ_{exit}}{EQ_{entry}}

Variables

$M O I C$: Equity multiple (multiple of invested capital) (x)
$E Q_{e x i t}$: Exit equity value (€)
$E Q_{e n t r y}$: Entry equity investment (€)

Measures how many times over the sponsor's original equity investment is returned at exit.