I am looking into sample questions for PE interviews; there is a question about LBO matrix... I have zero clue what LBO MATRIX specifically is? I have never heard word matrix attached to LBO? Can someone please explain? I did not find any information on WSO or anywhere else. Danke
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Been in industry 15 years, never heard of it.
Almost guarantee that this is a fudge up in the questions you're using BUT if I had to guess...this is how I'd think about it. Typically in your generic LBO model, you set up all your pro-forma operating assumptions and then goal-seek the leverage profile to achieve a target levered IRR for the equity contribution. My guess is the matrix they are referring to is playing around with the the leverage multiple and exit assumption to spread a matrix of levered returns...i.e. what does a 5x Debt/EBITDA plus a 10x exit in year 10 get you vs. a 4x Debt/EBITDA and a 11x exit in year 10...only thing I can think of.
It makes a lot more sense - what a relief, and what a great person you are. Thanks!
Follow up question. Normally, what would drive IRR more - financing mixture or the exit multiple? In the example that you’ve given of course we need to know more details like debt pay down, initial EBITDAs, FCF generation etc, but all else being equal, it must be an exit multiple…? I’ve tried some numbers and kept them all constant in both scenarios and second one with 4x leverage and 11x drove the IRR more, just seeking confirmation :)
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