Leveraged Buyout Simulation

Apply LBO modelling to a competitive buyout process

Students normalise and forecast three target companies, calculate Equity Value and Enterprise Value, assess debt capacity and submit acquisition bids against a target IRR.

4 - 6-hour team-based simulation
Analysis - Roadshow - Bidding
In-class, online or hybrid delivery

What students apply

The simulation brings together the core topics already covered in LBO, private equity and acquisition-finance teaching.

Operating case and valuation

Historical normalisation, P&L and cash-flow forecasting, FCFE, Equity Value and Enterprise Value.

Debt capacity and term sheets

Debt amount, pricing, maturity, amortisation, covenants, prepayment, guarantees and security.

Bid, financing and return

Lender selection, equity contribution, Enterprise Value bidding and target IRR.

At a glance

Duration

4 - 6 hours

Run one intensive session or divide the activity across several teaching sessions.

Format

Multiplayer LBO transaction

Role-based teams make connected financing, valuation and bidding decisions.

Level

UG, PG and MBA

Use the simulation across undergraduate, postgraduate and MBA finance teaching.

Professor tools

Dashboard included

Manage participants, control the timeline, monitor decisions and review final results.

Prerequisites

Basic DCF knowledge

Students should understand the foundations of discounted cash-flow valuation.

Delivery

Classroom, online or hybrid

The web-based simulation supports in-person, virtual and blended delivery.

Optional assessment

Team evidence available

Review Excel models, Approval Memorandums, debt packages, lender selections and final EV bids.

Course fit

Corporate finance, PE and financial modelling

Use it within LBO, valuation, acquisition-finance or investment-banking teaching.

How an LBO Deal Comes Together

PE firms, lenders and sell-side advisers move through the LBO process, from initial analysis and the roadshow to financing selection and final bids. This shows how purchase price, cash-flow resilience, debt structure, deleveraging and exit value work together to shape the final equity return.

1. Intro | 10 minutes:

The Intro stage is designed to orient students and build anticipation for the transaction ahead. Through the introductory video, students are introduced to the overall LBO process, the three target companies and the way the simulation will progress from initial analysis to final acquisition outcomes.

Each team also reviews its mission, objectives and responsibilities. Sell-side teams learn that their goal is to present their assigned company as an attractive investment opportunity and encourage stronger financing terms and higher bids. PE teams focus on valuing the companies, selecting appropriate financing and acquiring targets without overpaying. Lender teams aim to create competitive debt packages that are attractive to PE firms while remaining financially credible.

By the end of the stage, students should understand what their team is trying to achieve, how their decisions will affect other teams and what they will need to produce during the simulation.

2. Analysis | 90 minutes:

The Analysis stage gives each function time to study the available information, begin its technical work and prepare for the Roadshow. At this point, PE and lender teams have limited information about the three companies, so their initial analysis is deliberately incomplete. They must form early views while identifying the questions and information gaps that need to be addressed later.

Sell-side teams

Each sell-side team studies its assigned company in detail and begins preparing a persuasive Roadshow pitch. They review the company’s background, historical financial performance, management forecasts, growth prospects and private information.

They also develop their own valuation and investment narrative. Because they are representing the seller, their assumptions and presentation are likely to be more optimistic than those of the PE and lender teams. Their challenge is to present the company positively while still supporting their claims with credible information.

PE teams

PE teams begin valuing all three target companies using the supplied Excel models and the limited information initially available to them. They form preliminary forecasts, consider the main operating drivers and start estimating Equity Value and Enterprise Value.

They also identify assumptions that require further testing. Before the Roadshow, PE teams prepare questions about performance, growth, margins, cash flow, capital expenditure, working capital and any other factors that could affect valuation or investor returns.

Lender teams

Lender teams begin assessing all three companies from a credit and financing perspective. They consider how much debt each business may be able to support and start developing preliminary debt packages.

Their analysis covers areas such as debt amount, interest premium, maturity, amortisation, covenants, prepayment, guarantees and security. Like the PE teams, lenders prepare questions for the Roadshow so they can better understand the companies’ cash flow, risks and ability to service debt.

Approval Memorandums

PE and lender teams also begin their Approval Memorandums. These document the company analysis, market information, financial performance, forecasts, valuation and justification for the most important assumptions and financing decisions.

By the end of the Analysis stage, every team should have an initial position, a clear list of information gaps and a plan for how to use the Roadshow.

3. Roadshow | 25 minutes:

The Roadshow is the main information-sharing stage of the transaction. Each of the three sell-side teams presents its assigned company to the PE and lender teams.

The pitches cover the company’s background, investment case, historical performance, growth prospects, management forecasts, sell-side forecasts and valuation. Sell-side teams aim to increase confidence in the company, reduce concerns and encourage both stronger debt packages and higher acquisition bids.

A question-and-answer session follows each presentation. This is a critical opportunity for PE and lender teams because they began the simulation with only limited information.

PE teams use the Roadshow to test their forecasts, challenge optimistic assumptions and gather the information needed to improve their valuations. Lender teams focus on cash-flow resilience, downside risks, debt-service capacity and the protections they may need within their financing terms.

The quality of the questions matters. Teams that ask focused, evidence-based questions are more likely to obtain information that improves their analysis. Teams that remain passive may have to make important financing or valuation decisions with unresolved gaps.

After the Roadshow, PE and lender teams should be able to update their understanding of each company and refine the assumptions that will drive their final decisions.

4. DCM | 45 minutes:

The Debt Capital Markets stage is where lender teams convert their analysis into final financing offers. They review the information received during the Roadshow, reassess the risks of each company and finalise a debt package for all three targets.

Each package may include:

debt amount;
interest premium;
leverage covenant;
maturity;
amortisation;
prepayment terms;
guarantees;
security.

Lenders are competing to be selected by as many PE teams as possible. They therefore have an incentive to offer attractive financing, such as a higher debt amount or a lower interest premium. However, they must also avoid proposing terms that are too aggressive for the company’s financial position.

Sell-side teams must remain highly active during this stage. More attractive financing can increase the amount that PE firms are able or willing to bid for a company. Sell-side teams may therefore approach lenders, answer further questions and provide additional information that gives them greater confidence in the business.

They can also upload relevant documents to the Data Room and respond to information requests from PE and lender teams. Their objective is not simply to distribute information, but to help the transaction develop in a way that supports stronger financing and a higher sale price.

By the end of DCM, the lender teams submit their final debt packages. These packages become available for PE teams to review during the Buy Side stage.

5. Buy Side | 45 minutes:

The Buy Side stage brings together the updated company analysis, the Roadshow information and the final lender offers.

PE teams

PE teams compare the available debt packages for each company and select their preferred financing provider. They consider not only the amount of debt and interest premium, but also the wider terms and how the package affects risk, equity contribution and investor returns.

Once a lender has been selected, PE teams update their financial models using the chosen debt amount and interest premium. They also incorporate any new information received during the Roadshow or through subsequent discussions with the sell-side teams.

They then finalise their valuations and submit an Enterprise Value bid for each company. Their challenge is to bid high enough to acquire the target while avoiding a purchase price that would undermine the expected equity return.

Lender teams

Lender teams remain active because they want their financing packages to be selected by as many PE firms as possible. They may explain or clarify their terms, respond to final questions and reinforce why their offer is attractive.

Selection is important, but lenders must still consider the quality and sustainability of the financing they have offered. Winning the mandate with overly aggressive terms may not represent a strong credit outcome.

Sell-side teams

Sell-side teams monitor the developing bids and continue engaging with PE teams. Their objective is to encourage the highest credible valuation for their company.

They may provide final clarifications, reinforce the investment case and challenge PE teams to recognise the company’s growth potential. Their success depends partly on how effectively they influenced both the financing available and the bids ultimately submitted.

Final submissions

PE and lender teams upload their completed Excel models and Approval Memorandums. PE teams then submit their final Enterprise Value bids.

By the end of the stage, the system has the information needed to determine the acquirer, selected financing team and final structure of each transaction.

6. Reflection | No time limit:

The Reflection stage brings the complete transaction together. Students can see how the different forecasts, financing offers, lender selections and bids combined to produce the final outcome for each company.

The platform presents information such as:

the successful acquirer;
the selected financing team;
the final Enterprise Value;
the debt amount and financing terms;
the required equity contribution;
transaction multiples;
final debt packages;
performance summaries;
curated team feedback.

Each function reviews the results from a different perspective.

PE teams can examine whether they acquired a company, whether the price was defensible and whether the resulting equity return was consistent with their target. A winning bid may still represent overpayment if the price was too high relative to the company’s future cash flow.

Lender teams can see whether their packages were selected and whether their terms were both competitive and financially credible.

Sell-side teams can review the valuation achieved for their company, the financing support available to bidders and the extent to which their Roadshow and transaction activity contributed to a stronger sale outcome.

The professor can use the results to compare teams, challenge assumptions and explore why similar information led to different decisions. The debrief can examine:

why one team valued a company differently from another;
whether management forecasts were accepted too readily;
how debt availability affected the final bids;
whether the highest bid also produced an acceptable return;
why one lender package was selected over another;
how sell-side activity influenced financing and valuation;
whether the final capital structure was sustainable.

The Reflection stage is not only about identifying which teams won. It allows students to understand the relationship between operating assumptions, debt structure, purchase price and equity returns, and to recognise how decisions made by one function influenced the entire transaction.

Why professors use it

Connect finance concepts across one transaction

Students bring together normalising and forecasting, DCF modelling, FCFE, debt capacity, Enterprise Value and investor returns rather than treating each concept as a separate exercise.

Show how leverage, entry price and return interact

Students see how the debt amount, interest premium and acquisition price affect the equity contribution and investor return.

Compare models, term sheets and bids

Professors use the debrief to examine why teams reached different valuations, selected different lenders and produced different acquisition outcomes.

What the experience looks like

The Admin Panel brings together the simulation timeline, participant management, teaching resources, live decision monitoring and final results. The simulation progresses automatically after it is started, while the professor can adjust timings, pause, stop, broadcast alerts and coach selectively.

Control the transaction timeline

Configure the stage timings and use Play, Pause, Stop and Adjust to manage the session.

Access guidance inside the dashboard

Open the Setup and Facilitation guide, Teaching Notes and Gameflow Diagram from the Admin Guide.

Monitor decisions

Use Live Monitoring to review current inputs and identify where neutral clarification may be useful.

Case materials students work with

Students receive company information, historical financial data, management guidance and modelling resources for three target businesses. The materials combine quantitative evidence with transaction background, market positioning and management expectations.

Some information is role-specific. Sell-side teams use private company information to prepare their pitches and answer requests. Additional material can later be shared with PE and lender teams through the Data Room.

Information memorandum

The company memorandum introduces the target, its ownership and financing history, the sale process and the relevant sell-side mandate.

Historical financial and operating analysis

The financial materials provide the evidence required to build forecasts and challenge the company narrative, including revenue, costs, EBITDA, working capital and capital expenditure.

6 mins

Student Intro Video

Watch this short introduction before the simulation begins. It explains the LBO process, the three transaction perspectives and how each team’s decisions influence the final deal.

Assess valuation, financing and deal judgement

Assessment is optional. Professors may run the simulation as an ungraded applied activity or use the available platform data to support academic judgement. Simulation results should not automatically replace academic judgement. Professors should interpret the outputs alongside the submitted models, Approval Memorandums and the decision context of each role.

What professors can assess

• Forecasting and model discipline
• Valuation and return judgement

How to interpret the results

• Compare each bid with the resulting equity return
• Review platform results alongside models and memorandums

What professors can assess:

Forecasting and model discipline: Review whether teams normalise historical performance, form coherent forecasts and connect their operating assumptions to cash flow and valuation.
Valuation and return judgement: Examine how PE teams derive Equity Value and Enterprise Value, apply their target return and balance a competitive bid against the risk of overpaying.
Optional individual assessment report: Students may be asked to submit a short written report outside the platform once they have reviewed and reflected on their scores. This is not automatically captured or graded by the simulation.

How to interpret the results:

Compare each bid with the resulting equity return: A high bid may win the target while weakening the investor return. Compare price, debt, equity contribution and the resulting transaction outcome.
Review platform results alongside models and memorandums: Use the final outputs to identify questions, then review the assumptions, calculations and written justification behind the result.

Set up the transaction and let the simulation run

The simulation can progress automatically once launched, while the professor retains control over timing and access. Coaching is optional. Pause is useful for extra working time or discussion. Stop is useful between sessions, and Play starts or continues the simulation.

Step 1

Set up participants, teams and roles

Create 6+ teams with 3-5 students in each team. Assign Teams 1-3 to the three sell-side mandates and explain the dual PE and Lender responsibilities of Teams 4 onward.

Step 2

Configure timings and session settings

Review the stage timings and adjust them to suit one intensive workshop, several teaching sessions or a longer homework-supported schedule.

Step 3

Start and manage the simulation

Press Play to begin automatic progression. Use Pause for additional working time or discussion. Use Stop to lock students out of the simulation.

Step 4

Monitor progress and prepare the debrief

Use Live Monitoring to review current inputs and coach selectively without directing teams towards a preferred answer. At Reflection, review the completed transaction outputs before leading the debrief.

Professor Resources

Everything needed to prepare, run and debrief the LBO Simulation is organised within the resources below.

Private Equity and Buyout Firms
Valuation of Target Companies
Debt Financing in LBOs
Due Diligence Process
Deal Structuring and Negotiation

Creators of the LBO Simulation

These industry professionals were involved in the inception, creation, development, testing and optimisation of the simulation.

Over 15 years of experience across advisory, PE, VC, family offices, and entrepreneurship. Covered M&A transactions from multiple angles and holds a PhD in Corporate Finance.

Olaf Rottke

Senior investment banker at Morgan Stanley with experience in M&A and TMT coverage across New York and San Francisco. Studied business at Kellogg.

Bharat Venugopal

Investment banking, capital markets, PE, and corporate ratings experience at Morgan Stanley, S&P, and HPS Investment Partners. Holds a PhD in Quantitative Finance.

Gerhard Wörtche

Worked in the finance department of Precomp Tools. Studied Engineering and holds an MSc in Corporate Finance from Bayes.

Aatmay Upponi

Corporate finance experience across M&A, structured finance, credit risk, and leveraged finance at Morgan Stanley, SMBC, and Citi. Holds a BSc in Economics.

Georgi Naydenov

FAQs

A standalone model normally asks students to calculate returns for one assumed purchase price and financing structure. The simulation places the model inside a competitive transaction involving sell-side analysis, PE decision-making, lender terms and Enterprise Value bidding across three target companies. Students must use the model to make and defend a live commercial decision. This allows professors to assess not only technical accuracy but also how financing constraints, competition and negotiation shape the final bid.

The amount, price, maturity, amortisation, covenants, security and guarantees offered by the lender determine how much debt can support the transaction and on what conditions. That package changes the equity cheque and the return available to the PE firm, which in turn affects the maximum Enterprise Value it can defend. The simulation helps professors demonstrate that acquisition price and financing are interdependent: the bid cannot be finalised sensibly before the funding structure is understood.

A high bid may win the target but can reduce the equity return, require an aggressive operating case or depend on debt that the business cannot comfortably support. In the simulation, students must connect Enterprise Value, equity contribution, debt capacity and the target IRR. Professors should therefore assess whether the price is supported by forecast cash flow and a credible financing package, not simply whether the team submitted the largest number.

The memorandum should present a recommendation that is consistent with the team’s normalised historicals, operating forecast, valuation, debt capacity, financing terms and target return. Professors can look for clear assumptions, identification of the main risks and evidence that the downside has been considered. A polished document is not enough if the bid or financing inputs contradict it. The memorandum is most useful as evidence of how the team converted its model into an investment or lending decision.