Private Equity Basics
Buyouts, leverage, and the IRR game.
The LBO Model
5 min read
An LBO buys a company using mostly debt (typically 50–70% of the purchase price), repays debt with the target's cash flows, and exits in 3–7 years. Returns come from (1) debt paydown / deleveraging, (2) EBITDA growth, (3) multiple expansion.
Target IRRs are 20%+ at the deal level; sponsors aim for 2.5–3x money-on-money over the hold.
Key Concepts
LBO mechanics
MOIC vs IRR
3 return drivers
Sponsors, Funds, and Fees
4 min read
PE funds are typically 10-year vehicles. The GP (sponsor) earns 2% annual management fee and 20% carried interest on profits above an 8% hurdle. LPs (pensions, endowments, sovereign wealth) provide the capital.
Top-tier sponsors: Blackstone, KKR, Carlyle, Apollo, Bain Capital, CVC, TPG, Advent.
Key Concepts
GP vs LP
2 and 20
Hurdle and carry