LBO Modeling Practical Experience … Investment Return Approach

Private Equity Investment Return Calculation Method — "How Does Leverage Maximize Returns?"

Executive Summary

Global private equity (PE) deal volume reachedapproximately $2 trillionin 2025, setting a new all-time high. In Q3 2025 alone, 5,083 deals totaling $595.3 billionwere executed, anchored by the $56 billion acquisition of EA (Electronic Arts),the largest leveraged buyout (LBO) in history. The meaning behind these figures is clear: Leveraged Buyouts (LBOs) remain the core deal engine for PE, and modeling capability is one of the variables that separates investment success from failure.¹

Based on experience within the O Group, the LBO model was not merely a simple spreadsheet. For the O Group, the core principle was "maximizing return on equity by acquiring large companies with minimal equity capital, repaying debt with the target company's cash flow, enhancing corporate value, and then exiting through a full sale or partial divestiture (with the surviving entity seeking synergies with other affiliates)."
It embodied the investment philosophy of nearly all private equity firms in numerical form. This content aims to thoroughly dissect the entire LBO modeling process from the perspective of practitioners—covering capital structure design, returns attribution, the 100-day value creation plan, and scenario-based sensitivity analysis. However, I will focus on organizing the core elements as effectively as possible.

1. The Basic Structure of LBOs … The Mechanism by Which Leverage Creates Returns

1.1) Core Principles of LBO

The essence of an LBO is a transaction structurethat leverages debt to maximize return on equity (ROE). It finances 60–80% of the acquisition funds through external borrowing, using the target company's assets and cash flow as collateral.

LBO Basics Official $Equity Return = \frac{Exit Equity Value}{Entry Equity Value} = \frac{E V_{e x i t} - {Net Debt}_{e x i t}}{E V_{e n t r y} - Debt Funded by Sponsor at Entry}$

PE typically targetsan IRR of over 20% and a MOIC (Multiple on Invested Capital) of 2.5x to 3.5x through this structure.
For example, CVC Capital Partners exceeded these targets in its 2024 realized transactions, achieving a Gross MOICof 4.0x and a Gross IRR of 30%.²

It is a misconception that only private equity must utilize LBO modeling. In the case of industrial conglomerates like Group O or Company S, LBO modeling is sometimes modified and applied to establish business and capital scenarios aimed at enhancing corporate value and shareholder value, such as improving ROIC and Equity IRR.

1.2) The three key conditions for an LBO to work

Prerequisite	Explanation	Risks in case of violation
Stable cash flow	Predictable FCF for interest and principal repayment	Liquidity crisis, default
Low capital expenditures	Low CapEx burden enables maximization of surplus cash	Decreased debt repayment capacity
Non-core assets exist	Early repayment of debt using saleable assets	Reduce Exit Options

Thisexplains whyhealthcare and software sectors are key targets for LBOs as of 2025. Global PE buyout deals in the healthcare sector reached$62 billionin the first half of 2025 alone.³

2. Capital Structure Design … Anatomy of the Capital Stack

2.1) Hierarchy of the Capital Stack

The capital structure of an LBO is designed with distinct tranches based on its risk-return profile.⁴

Category	specific gravity	Interest Rate (Cost)		Supplier
Senior Secured Debt	50–70%	SOFR + 2–4% (5–8%)	First priority	Bank, Syndicated Loan, Private Credit Fund
Mezzanine Debt	10–20%	8–14% (Higher when including PIK)	Second priority	Credit Fund, Hedge Fund
Unitranche	20–40%	7–11%	Single Tranche	s (Direct Lending)
Preferred Equity	0–10%	12–18%	Common stock senior	Mezzanine Specialist Investor
Common Equity (Sponsor)	20–40%	(IRR 20%+ target)	Last priority	PE Sponsor, Co-Investor

Source: KPMG, "Private Equity Deal Structuring Guide" (2023)

2.2) The Reality of Leverage Ratios … Transition from "Peak Caution" to Normalization

2023was the year of "Peak Caution"in the U.S. LBO market. The average equity contribution by sponsors hit a cycle high of 51.1%, while the leveraged loan spread widenedto S+446 basis points. This resulted from PE sponsors dramatically increasing their equity share under pressure from borrowing costs.

However, the Federal Reserve's rate cuts beginning in the second half of 2024 and the improved supply-demand dynamics in the leveraged loan market are gradually easing this conservative stance. Entering 2025, the leveraged loan market is recordingits highest issuance levels since 2021, with primary syndicated loans reaching a quarterly recordof $404 billionin Q3.

Trends in the Capital Structure of the U.S. LBO Market (2022–2025)

Item	2022	2023	2024	First Half of 2025	Q3 2025
Average Equity Contribution	~45%	51.1% (Cycle High)	48–50%	46%	Continued decline
Sub-40% Equity Deal Weight	–	12.5%	–	–	~35%
Average Purchase Price (EV/EBITDA)	11.0x	10.8x	10.9~11.0x	11.7x (Q1)	Rise
Large LBO Leverage (Debt/EBITDA)	–	–	–	–	sub-6.0x
Mid-Market Leverage (Debt/EBITDA)	–	–	–	–	sub-4.5x
BSL Average Spread	~450 bp+	S+446bp	S+389bp	S+351bp	S+313bp (All-time low)

Source: PitchBook LCD, Ropes & Gray, LSEG LPC, NEPC, Portage Point Partners

Core Driver ①: The Scale and Speed of Spread Compression

Spread changes are one of the key drivers of the current LBO capital structure.B-rated leveraged loan spreadshita 10-year low of S+317bp, while B+ rated spreads fell to S+275bp and BB-rated spreads dropped to S+247bp. This representsa spread compression of approximately 130 basis points (1.3 percentage points)compared to 2023, directly translatingto annual interest cost savings ofaboutKRW 4 billionfor an LBO of a company with KRW 60 billion EBITDA.

Core Driver ②: Structural Decline in Equity Contribution

The trajectory of equity contributions most honestly reflects market leverage preferences. From the 2023 cycle peak of 51.1%,it has declined by approximately 5 percentage pointsto 46% as of 2025 YTD. More notably,the proportion of Sub-40% Equity deals surged from 12.5% in 2023 to approximately 35% in 2025.

However, Ropes & Gray's Q1 2025 report presents data in the opposite direction — the average Equity Contribution for Q1 2025 was 52%, actually rising compared to 50% in 2024. This is interpreted as a temporary maintenance of a conservative capital structure due to the concentration of large, high-quality deals in Q1.
As Q3 progressed,the trend of gradually increasing leveragebecame clear, driven by declining spreads and intensifying deal competition.

Interpretation of data discrepancies: The coexistence of 52% for Q1 and 46% for YTD stems from the increasing leverage of large BSL-based deals as we move toward H2, driven by the concentration of mega take-private deals (e.g., EA $56 billion). Presenting a single average without quarterly or deal-size breakdowns could misrepresent the market's actual dynamics.

Core Driver ③: Rebound in Purchase Price Multiple

The LBO purchase price multiple rebounded from10.8x(EV/EBITDA) in 2023to10.9–11.0x in 2024 and11.7xin Q1 2025, returning to 2022 levels. The global LBO multiple based on MSCI Burgess also reached approximately11.5xin Q1 2025.

As acquisition prices rise while leverage expands, it signifies thatthe reduction in funding costs is being converted into the capacity to pay higher acquisition prices. This is a double-edged sword for PE sponsors — because a higher entry multiple reduces the potential for multiple expansion at exit.

Purchase Price (EV/EBITDA)	2022	2023	2024	Q1 2025
Average U.S. LBO	11.0x	10.8x	10.9~11.0x	11.7x
Global LBO (MSCI Burgess)	~11.5x	–	–	~11.5x

Source: PitchBook, Ropes & Gray, MSCI Burgess, Claymore Partners

Other Considerations … Normalizing Leverage During a Period of Declining Interest Rates⁵

Expectations for further Fed rate cuts in 2025 have spread, causingborrowing costsin the leveraged financing marketto fall by 300 basis points (3 percentage points) from their peak. According to Morgan Stanley's analysis, the average borrowing rate for Middle Market turn-around loans has normalizedto 9-11%, down 3 percentage points from the 2023 peak, with room for further reductions in 2026.

Spread compression is now in full swing. In the global bond issuance market, investor demand has pushed spreadsto their lowest levels in decades, setting a recordasglobal bond issuancesurpassed $1 trillionin just the first five weeks of 2026. This signifies a dramatic improvement in borrowing conditions.

Opinion Based on Experience: Perception of Three Regimes

The current market is ina transition phasebetween the following three regimes.

Regime Equity Contribution Leverage Spread Period
Overheating
(Aggressive) 30–40% 6.0x+ S+250~350 bp 2015–2018, 2021
Repair Kit
(Cautious) 50%+ 3.5–4.5x S+400~450 bp 2022–2024
Normalization
(Normalization) 45–48% 4.5–5.5x S+300~375 bp 2025 H2–Present

It is considered significant that average leverageremains below 5xas of Q3 2025. This suggestsa structural shift whereGPsprioritize operational value creation over financial leverage,even as spreads have fallen to historic lows.
However, if the Fed implements additional rate cuts between 2026 and 2027, the possibility arises that a more aggressive capital structure could reappearasEquity Contributionfalls below 40%.
In this case, it would mean a return to the leverage environment seen between 2015 and 2018. For PE sponsors, this signifies an expansion of the yield leverage effect, while for the credit market, it means a re-accumulation of risk.

Questions LPs are expected to pose to GPs during the investment committee meeting

(Example) "Is the IRR calculated using the current S+313bp spread (an all-time low) sustainable even if the spread widens by 100bp at the time of future refinancing?"

Therefore, the GP must incorporate the mean reversion risk of the spread into its sensitivity analysis.

Regime	Equity Contribution	Leverage	Spread	Period
Overheating (Aggressive)	30–40%	6.0x+	S+250~350 bp	2015–2018, 2021
Repair Kit (Cautious)	50%+	3.5–4.5x	S+400~450 bp	2022–2024
Normalization (Normalization)	45–48%	4.5–5.5x	S+300~375 bp	2025 H2–Present

2.3) Debt Repayment Mechanism: Cash Sweep

In the LBO model, cash sweep (automatic repayment of excess cash flow) is key to debt reduction.⁶
$Mandatory Repayment + Cash Sweep = Total Debt Repayment per Year$

Cash Sweepis typicallystructured such that 50–75% of free cash flow after debt serviceis mandatorily allocated to debt repayment. The remainder is utilized for operational improvement investments, add-on acquisitions, or retained earnings.

3. Five-Step Process for Building an LBO Model

Step 1: Entry Valuation

Item	Formula/Standard	Example
LTM EBITDA	Adjusted EBITDA for the most recent 12-month period	60 billion won
Multiple Entries*	Based on Comparable Companies/Precedent Transactions	8.0x
Enterprise Value	EBITDA × Multiple	480 billion won
(-) Existing debt	Repayment or assumption upon acquisition	(80 billion won)
(+) Cash	Adjustment upon acquisition	20 billion won
Equity Value	EV – Net Debt	420 billion won

*Note: Entry Multiple is directly linked to the results of the Comps analysis covered in Part 2. It should be considered during LBO modeling.

Step 2: Sources & Uses Composition

Sources (Funding)

Source	Amount	specific gravity
Senior Term Loan A	120 billion won	25.0%
Senior Term Loan B	144 billion won	30.0%
Mezzanine Debt	48 billion won	10.0%
Sponsor Equity	158.4 billion won	33.0%
Management Transition	96 billion won	2.0%
Total Sources	480 billion won	100%

Uses (Funds Usage)

Purpose	Amount	specific gravity
Enterprise Value (Purchase Price)	480 billion won	90.9%
Refinancing of Existing Debt	0원	0%
Transaction Fees	14.4 billion won	2.7%
Financing Fees	96 billion won	1.8%
Cash to Balance Sheet	24 billion won	4.5%
Total Uses	528 billion won	100%

Note: Sources must equal Uses. In practice, adjustments are made to account for assumed debt, original issue discount (OID), revolver commitment fees, etc.

Step 3: Business Model — Five-Year Financial Projections

Assumption: EBITDA Margin improvement based on operational efficiency and fixed cost leverage (Unit: KRW billion)

Item	Y0 (Entry)	Y1	Y2	Y3	Y4	Y5 (Exit)
Sales	3,000	3,240	3,499	3,779	4,081	4,408
growth rate	–	8%	8%	8%	8%	8%
EBITDA	600	680	770	860	950	1,040
EBITDA Margin	20.0%	21.0%	22.0%	22.8%	23.3%	23.6%
Capital Expenditures	(120)	(130)	(140)	(151)	(163)	(176)
ΔNWC	–	(24)	(26)	(28)	(30)	(33)
FCF (Unlevered)	–	526	604	681	757	831

Step 4: Debt Schedule

Assumption: Mezzanine PIK rate of 8%. Cash Sweep applies sequentially to TLB after prioritizing repayment of Senior TLA.

Item	Y0	Y1	Y2	Y3	Y4	Y5
Senior TLA Opening Balance	1,200	1,200	1,020	820	600	360
Regular repayment	–	(120)	(120)	(120)	(120)	(120)
Cash Sweep	–	(60)	(80)	(100)	(120)	(140)
TLA Closing Balance	1,200	1,020	820	600	360	100
Senior TLB Opening Balance	1,440	1,440	1,426	1,398	1,355	1,295
Fixed repayment (1% p.a.)	–	(14)	(14)	(14)	(14)	(14)
Cash Sweep	–	0	(14)	(29)	(46)	(65)
TLB Closing Balance	1,440	1,426	1,398	1,355	1,295	1,216
Mezzanine (PIK)	480	518	559	604	652	704
Total Debt	3,120	2,964	2,777	2,559	2,307	2,020
Net Debt	2,880	2,684	2,457	2,199	1,907	1,580
Net Debt / EBITDA	4.8x	3.9x	3.2x	2.6x	2.0x	1.5x

Step 5: Exit Analysis and Return Calculation

Scenario	Exit Multiple	Exit EV	Net Debt	Equity Value	MOIC	IRR
Bear	7.0x	7,280	1,580	5,700	3.4x	27.7%
Base	8.0x	8,320	1,580	6,740	4.0x	33.6%
Bull	9.0x	9,360	1,580	7,780	4.6x	39.1%

Sponsor Equity: 168 billion won (including Management Rollover),

$M O I C_{B a s e} = \frac{6, 740}{1, 680} = 4.01 x$ $I R R_{B a s e} = {(\frac{6, 740}{1, 680})}^{1 / 5} - 1 = 32.0 % (Simple approximation)$

It is recommended to calculate the actual IRR using the XIRR function, taking into account the timing of cash flows such as interim dividends (Dividend Recap), additional investments (Add-on Capex), and management fees.

4. Return Attribution … The DNA of Value Creation

The sources of LBO returns can be broken down into three components.

4.1) Three Value Creation Drivers

Dongin	Mountain formula	Contribution (Global Average)
EBITDA growth	(Exit EBITDA – Entry EBITDA) × Entry Multiple	~28%
Multiple Expansion	Exit EBITDA × (Exit Multiple – Entry Multiple)	~26%
Debt Repayment (Deleveraging)	Net Debt at Entry – Net Debt at Exit	~57%
(-) Transaction costs	Acquisition and Sale Fees	~(10%)

Total: ~100% of Total Value Creation

4.2) Application of Return Decomposition to This Model

Base Case (Exit 8.0x) basis

Dongin	Amount (100 million won)	Contribution
(A) EBITDA growth	(1,040 – 600) × 8.0 = 3,520	55.8%
(B) Multiple Expansion	1,040 × (8.0 – 8.0) = 0	0%
(C) Debt Repayment	2,880 – 1,580 = 1,300	20.6%
(D) Transaction costs	(240)	(3.8%)
Total Value Creation	4,580	–
Verification: Exit Equity – Entry Equity	6,740 – 1,680 = 5,060	–

Insights from this case: Despite being a bear case, the analysis shows a positive outcome: an IRR of 27.7% is achievable, andEBITDA growthalone (without multiple expansion, Entry = Exit = 8.0x) candrive 55.8% of value creation. This aligns with 2025 PE industry trends. — We wish to reiterate that "Operational Excellence" remains the core paradigm for PE value creation.

4.3) EBITDA Growth vs. Multiple Expansion: Which is More Powerful?

Which has a greater impact on equity value: a $1 increase in EBITDA or a 1x multiple expansion?

This is a question that frequently comes up when you're out in the field doing the actual work. (I hope junior colleagues won't take this too hard or worry too much about it.)
In some companies, you might even see discussions or lectures about what the numerator and denominator are, even at the board level.
Or sometimes, even WACC is just referred to generically as a discount rate. Of course, I understand why they speak that way, but based on my experience, I learned differently... Anyway, my conclusion is that current juniors shouldn't worry too much. It's important to discuss what you don't know with nearby colleagues and learn through practice. (Don't be hurt by the tone or level of the questions...)

Comparative Analysis

Variable	Change	Exit EV Change	Equity Value Change
EBITDA +100 million won	1,040 → 1,041	+800 million won	+800 million won
Exit Multiple +1.0x	8.0x → 9.0x	+104 billion won	+104 billion won

The per-unit impact of multiple expansion is overwhelming.
However,while EBITDA growth is highly controllable and sustainable for management, multiple expansion relies on market conditions and buyer competition, making it highly unpredictable.
According to Bain & Company's 2024 report, during periods of rising interest rates, strategies reliant on multiple expansion rapidly weakened,and operational improvementemergedas the primary driver of PE returns.⁷

5. PE Value Creation Framework … From the 100-Day Plan to Exit

5.1) Five Key Levers for Value Creation

For O Group's in-house private equity in 2018, the value creation strategy comprised the following five key levers.

#	Lever	Execution Details	EBITDA Impact
1	Sales Efficiency	Supply chain optimization, cost restructuring, process automation	direct
2	Sales growth	Regional expansion, new product launches, strategic partnerships	direct
3	Digital Transformation	AI and automation adoption, data-driven decision-making	Indirect → Direct
4	Cash Flow Optimization	Strengthening Working Capital Management, Refinancing	Improvement in Free Cash Flow
5	Multiple Expansion Induction	Securing a premium at exit through enhanced business quality	indirect

5.2) 100-Day Plan

Approximately 90% of PE funds establish a 100-day plan, as this period immediately following deal closing represents the 'inflection point' when the organization is most receptive to change.

30-60-90 Day Execution Framework

Period	Key Task	Output
Day 1–30	Setting Expectations, Aligning Leadership, Sharing the VCP (Value Creation Plan)	Executive Kickoff, KPI Dashboard Design
Days 31–60	Priority Execution, Quick Win Achievement, Sales Rhythm Establishment	Cost reduction implemented immediately, sales pipeline review
Days 61–100	Initial results evaluation, plan adjustment, and confirmation of the mid-to-long-term roadmap	Board Report, Hold Period Strategy Finalized

Representative Quick Win Cases

Procurement Consolidation: 5–15% reduction in purchase unit cost → Annual EBITDA +2–5 percentage points
Pricing Review: Profitability analysis per SKU followed by price readjustment → Margin +1~3 percentage points
Working Capital Improvement: Shortening Days Sales Outstanding (DSO) → Immediate improvement in Free Cash Flow (FCF)

5.3) PE Value Creation Strategy Reorganization

KPMG has diagnosed that private equity's value creation strategy is undergoing a fundamental restructuring in an environment where arbitrage opportunities leveraging low-cost debt have virtually disappeared. As leverage arbitrage—which drove LBO IRR during the low-interest-rate era—has weakened, operational value creation has emerged as the core driver of PE returns.⁸

Simon-Kucher named this "Value Creation 2.0" and presented a system that manages pricing strategy, sales effectiveness, and operational efficiency through quarterly reviews and real-time dashboards.⁹

6. Korea's Private Equity Fund Market … Distinctive Characteristics Compared to the Global Market

6.1) Market Size and Performance¹⁰

Indicator	figures	Point of view
Cumulative PEF Formation Scale	136.4 trillion won	Late 2023
Number of completed investment recoveries	231건	Late 2024
Average IRR (Completed Recovery Cases)	27.8%	Entire period
2017 Vintage Net IRR Median	19%	As of the end of 2024
KOSPI return over the same period	6%	Comparative Benchmark
Average holding period	5.2년	Korea PEF

The median net IRR of Korean private equity funds at 19%is more than three timesthe KOSPI return of 6%, demonstrating that PE's active management generates significant excess returns compared to passive investing.¹¹

6.2) Structural Characteristics of the Domestic Market

Characteristics	Global	Korea
Key Strategy	Buyout-focused	Buyout + Growth Hybrid
Leverage level	Debt/EBITDA 4–6x	3–5x (conservative)
Average holding period	6.8 years (Global all-time high)¹²)	5.2년
Carve-out ratio	11.8% as of Q4 2024	Increasing Trend (Large-Scale Corporate Restructuring)
Exit route	IPO, Strategic Sale, Secondary Offering	Focus on strategic divestitures, increased emphasis on IPOs

6.3) Carve-out: A New Growth Engine for Korean Private Equity

In 2024, 44% ofAsia-Pacific GPs identifiedcarve-out transactions as the most attractive investment opportunity. Particularly in the healthcare sector, the IRR for PE carve-out deals reached 45%, significantly outperforming standard buyouts (26%). Domestically, the carve-out deal pipeline is expanding as large corporations accelerate the sale of non-core business units.

7. Sensitivity Analysis … Which variables influence the rate of return?

7.1) 2-Way Sensitivity Table: Entry Multiple × Exit Multiple

MOIC (x)

	Exit 7.0x	Exit 7.5x	Exit 8.0x	Exit 8.5x	Exit 9.0x
Entry 7.0x	4.3x	4.7x	5.1x	5.5x	5.9x
Entry 7.5x	3.5x	3.8x	4.2x	4.5x	4.8x
Entry 8.0x	3.0x	3.2x	3.5x	3.8x	4.1x
Entry 8.5x	2.6x	2.8x	3.0x	3.3x	3.5x
Entry 9.0x	2.3x	2.5x	2.7x	2.9x	3.1x

7.2) 2-Way Sensitivity Table: EBITDA CAGR × Exit Multiple

IRR (%)

	Exit 7.0x	Exit 7.5x	Exit 8.0x	Exit 8.5x	Exit 9.0x
CAGR 5%	12.5%	14.9%	17.1%	19.1%	21.1%
CAGR 8%	18.2%	20.4%	22.5%	24.5%	26.4%
CAGR 10%	21.6%	23.9%	25.9%	27.9%	29.7%
CAGR 12%	25.0%	27.1%	29.2%	31.1%	32.9%
CAGR 15%	29.8%	31.9%	33.9%	35.8%	37.6%

Practical Implications: When the Entry Multiple increases by 1.0x, MOIC declines by approximately 0.3–0.4x. Conversely, when EBITDA CAGR rises by 3 percentage points, IRR improves by about 4–6 percentage points. The PE adage that "buying cheap is important, but growing fast is more important" is proven numerically.

8. Scenario Validation … Applying the 3P Framework

8.1) 3P Verification of Core Assumptions (Example)

Home	Possibility	Plausibility	Probability	Ruling
EBITDA CAGR 8% (5 years)	✅ Possible	✅ Valid	✅ High	8% sales growth + margin improvement combination
EBITDA Margin 20→23.6%	✅ Possible	✅ Valid	🔶 Midpoint	Purchasing integration and price optimization as a prerequisite
Entry = Exit Multiple 8.0x	✅ Possible	✅ Valid	✅ High	Conservative Family (Extended Family)
Senior Debt SOFR + 350 basis points	✅ Possible	✅ Valid	🔶 Midpoint	Reflecting expectations of interest rate cuts in 2026
Strategic sale after five years of ownership	✅ Possible	✅ Valid	✅ High	Average duration of Korean private equity funds: 5.2 years
Mezzanine PIK 8%	✅ Possible	✅ Valid	✅ High	Within the standard market range
Cash Sweep Applied	✅ Possible	✅ Valid	✅ High	Included in most LBO agreements

8.2) Stress Test … Worst-Case Scenario (Example)

stress variable	Base Case	Stress Case	Impact on IRR
Sales growth rate	8%	3%	-8.2 percentage points
EBITDA Margin	23.6%	19.0%	-6.5 percentage points
Exit Multiple	8.0x	6.5x	-7.8 percentage points
Interest rate hike	SOFR + 350 basis points	SOFR + 500 basis points	-2.1 percentage points
Complex stress	All of the above	Simultaneous application	IRR → 8.4%

Even under a compound stress scenario, the IRR of 8.4% prevents principal loss, but it barely meets the fund's hurdle rate (typically 8%). This scenario effectively eliminates the GP's carry (performance fee).

8.3) Cross-Validation: Cross-Validation with DCF

Compare and validate the range of implied equity value (KRW 570–778 billion) from the LBO model against the DCF results.

Methodology	Equity Value Range	Key Assumptions
LBO (Bear to Bull)	570 to 778 billion won	Exit 7.0–9.0x, EBITDA CAGR 8%
DCF (WACC 9–11%)	520 to 710 billion won	Terminal Growth 2–3%
Trading Comparisons	550 to 680 billion won	Peer median ± 1 SD
Overlap Zone	570 to 680 billion won	Reasonable valuation range

The overlapping range of the three methodologies convergesat 570 to 680 billion won, and negotiations must proceed within this range.
Scenarios where the LBO model exceeds this range require reconsideration.
As an aside,
internal reports often contain numbers distorted to align with owner preferences or higher-ups' intentions more than you'd expect. Of course, if your mindset is 'Nah~ our company (or team) would never do that'... well, go ahead and think that. It's easier on the conscience.

* For juniors' future careers, if I may offer unsolicited advice:
Among countless evaluation criteria, one example is this: if 'strategy or investment' keywords appear in your own or a nearby team's context,
it might be wise to consider the financial modeling capabilities within that team.
To put it more simply:
How do seniors fill a blank Excel sheet? Or how do they draft models on blank paper?
This also serves as a way to consider how many people around me understand basic financial structures and are trainingthemselvesto master the language needed for management beyond just business (myself included, of course)...
*'Dan (鍛)' means practicing a thousand times, and 'ryeon (鍊)' means practicing ten thousand times.

9. Practical Checklist … 12 Key Points for LBO Modeling

#	Principle	Key Points
1	Confirm Sources = Uses Match	If there's even a 1 won difference, the entire model is invalid.
2	Circular Reference Avoidance	Interest Expense ↔ Debt Balance Circular Reference Resolution
3	Accurately implement the Cash Sweep logic	Repayment Priority: Revolver → TLA → TLB
4	Reflecting the accumulation of PIK interest debt	Mezzanine PIK increases debt without cash outflow
5	Management Rollover Handled Separately	Calculate MOIC separately from Sponsor Equity
6	Distinction Between Transaction Fee and Financing Fee	Difference between Expense vs. Deferred Amortization Treatment
7	Sensitivity analysis must be performed at a minimum of 2-way.	Entry Multiple × Exit Multiple, EBITDA Growth × Leverage
8	IRR is calculated as XIRR.	Accurately reflecting cash flow timing
9	Minimum Cash Balance Setting	Minimum cash balance required for business operations
10	Automatic Covenant Violation Check	Debt/EBITDA, Interest Coverage Restrictions
11	Perform attribution analysis	EBITDA Growth, Multiple Expansion, Deleveraging Separation
12	DCF and Cross-Validation	Verifying the Overlap Between LBO Implied Value and DCF Results

10. The Evolution of LBOs … Beyond 2025, the 2026 Paradigm

10.1) The Era of the Largest LBOs in History

The EA acquisition finalized in Q3 2025 ($56 billion) was recordedas the largest LBO in history. This indicates that deal sizes for PE sponsors are structurally increasing. Global LBO transaction volume in the first half of 2025reached $150.35 billion, already amounting to 70% of the total for all of 2024.¹³

10.2) The Rise of Direct Lending and Unitranche

Private credit funds have emerged as the primary providers of LBO financing, replacing traditional bank syndicated loans. The unitranche structure combines senior and mezzanine debt into a single tranche, offeringspeed and flexibility, and can account for 20-40% of the total capital structure.¹⁴

10.3) Through operational excellence in financial engineering

78% of the PE industry respondedthat the importance of operational improvement will grow even more in the future. In an environment where low-interest arbitrage has disappeared, the center of gravity for value creation has irreversibly shifted from "Financial Engineering → OperationalExcellence."¹⁵

Closing Remarks

LBO modeling is the language of private equity. Reading and writing this language is not merely a matter of Excel spreadsheet skills, but a structural understanding of "how leverage can create value and simultaneously destroy it. "

The figure of $2 trillion in global private equity deal volume by 2025 signifies that leveraged buyouts now account for the largest share of the world economy in history. Simultaneously, with the average holding period for global private equity funds reaching a record high of 6.8 years, tensions are rising between LPs' pressure for liquidity recovery and GPs' timeframe for value creation.

The average IRR of 27.8% recorded by Korean private equity funds is impressive, but it is also largely a product of the past, heavily reliant on multiple expansion (market growth). In an environment where interest rate normalization and multiple compression occur simultaneously,achieving a true IRR of 20% requires 'substantive value creation' through EBITDA growth as the only solution.

This is precisely why the 100-day plan exists, and why PE must evolve from being a mere financial investor into a 'business partner '.

Endnotes

Practical Experience in LBO Modeling … Investment Return Approach