Which variables impact an LBO the most?
Answer
Purchase and exit multiples tend to have the most impact on the returns. After that, the debt / equity ratio has the most impact. Change the exit multiple and then the debt / equity ratio by 20% in a model while holding the other constant, and the effect is easy to see.
Why this matters to bankers
To build an accurate LBO, bankers must understand which levers the returns are most sensitive to.