---
name: "valuation_lbo"
area: "valuation"
title: "Model a buyout financed with debt"
price: "free"
method: "POST"
url: "https://api.conecto.chat/v1/tools/valuation_lbo"
mcp_server: "https://api.conecto.chat/mcp/valuation"
auth: "Authorization: Bearer <conecto_sk_ key>"
docs_url: "https://conecto.chat/tools/valuation/valuation_lbo"
---

# Model a buyout financed with debt (`valuation_lbo`)

A buyout financed with debt, year by year: sources and uses, each debt tranche, the exit, MOIC, IRR and an IRR grid by entry and exit multiple.

An LBO: sources and uses, each debt tranche's interest, amortization and cash sweep year by year, the cash left, the exit value and equity, MOIC and IRR, and an IRR grid for entry by exit multiple. Interest is on each opening balance; tax is on EBITDA less depreciation and interest.

Price: Free up to 1,000,000 reads a month for the whole account, then $0.50 per 10,000 reads. A call that fails costs nothing.

## Use it when

To see what a buyout financed with debt returns, and how much debt it carries.

## Say this to your agent

> If we buy Kuechentechnik Nord at 7 times EBITDA with a bank loan of three times EBITDA, what return do we make when we sell after five years?

## Inputs

| Name | Type | Required | Description | Allowed values | Default |
|---|---|---|---|---|---|
| `entry_ebitda` | number | no |  |  |  |
| `entry_multiple` | number | no | At most 100. |  |  |
| `entry_enterprise_value` | number | no | Instead of entry_ebitda x entry_multiple. |  |  |
| `fees` | number | no | At least 0. |  | `0` |
| `debt` | array of objects | no | Up to 6 items. |  |  |
| `debt[].name` | string | yes, in each item of `debt` | 1 to 200 characters. |  |  |
| `debt[].amount` | number | no | At least 0. |  |  |
| `debt[].ebitda_multiple` | number | no | Instead of amount: times entry EBITDA. 0 to 20. |  |  |
| `debt[].rate` | number | yes, in each item of `debt` | Interest a year. A decimal: 0.09 is 9%. 0 to 1. |  |  |
| `debt[].amortization` | number | no | Repaid each year. At least 0. |  | `0` |
| `debt[].sweep` | boolean | no | Spare cash repays this tranche, in the order given. |  | `false` |
| `years` | array of objects | yes | 1 to 15 items. |  |  |
| `years[].ebitda` | number | yes, in each item of `years` |  |  |  |
| `years[].depreciation` | number | no |  |  |  |
| `years[].capex` | number | no |  |  |  |
| `years[].nwc_change` | number | no |  |  |  |
| `tax_rate` | number | yes | Tax on profit. A decimal: 0.09 is 9%. 0 to 0.9. |  |  |
| `exit_multiple` | number | no | The entry multiple when left out. At most 100. |  |  |
| `sensitivity` | object | no |  |  |  |
| `sensitivity.steps` | integer | no | 1 to 3. |  | `1` |
| `sensitivity.step` | number | no | 0.1 to 5. |  | `0.5` |
| `currency` | string | no | Shown with the figures, e.g. EUR. Nothing is converted. Up to 10 characters. |  |  |

## Example

Written for Hansen & Voss, a restaurant-equipment wholesaler in Hamburg with 60 staff.

MCP: call `valuation_lbo` on the MCP server `https://api.conecto.chat/mcp/valuation` with these arguments:

```json
{
  "entry_ebitda": 2.6,
  "entry_multiple": 7,
  "fees": 0.4,
  "tax_rate": 0.3,
  "debt": [
    {
      "name": "Senior term loan",
      "ebitda_multiple": 3,
      "rate": 0.065,
      "amortization": 0.6,
      "sweep": true
    }
  ],
  "years": [
    {
      "ebitda": 2.8,
      "depreciation": 0.5,
      "capex": 0.5,
      "nwc_change": 0.1
    },
    {
      "ebitda": 3.0,
      "depreciation": 0.5,
      "capex": 0.5,
      "nwc_change": 0.1
    },
    {
      "ebitda": 3.3,
      "depreciation": 0.6,
      "capex": 0.6,
      "nwc_change": 0.1
    },
    {
      "ebitda": 3.5,
      "depreciation": 0.6,
      "capex": 0.6,
      "nwc_change": 0.1
    },
    {
      "ebitda": 3.8,
      "depreciation": 0.6,
      "capex": 0.6,
      "nwc_change": 0.1
    }
  ],
  "currency": "EUR"
}
```

REST:

```bash
curl https://api.conecto.chat/v1/tools/valuation_lbo \
  -H "Authorization: Bearer $CONECTO_KEY" \
  -H "Content-Type: application/json" \
  -d '{"entry_ebitda": 2.6, "entry_multiple": 7, "fees": 0.4, "tax_rate": 0.3, "debt": [{"name": "Senior term loan", "ebitda_multiple": 3, "rate": 0.065, "amortization": 0.6, "sweep": true}], "years": [{"ebitda": 2.8, "depreciation": 0.5, "capex": 0.5, "nwc_change": 0.1}, {"ebitda": 3.0, "depreciation": 0.5, "capex": 0.5, "nwc_change": 0.1}, {"ebitda": 3.3, "depreciation": 0.6, "capex": 0.6, "nwc_change": 0.1}, {"ebitda": 3.5, "depreciation": 0.6, "capex": 0.6, "nwc_change": 0.1}, {"ebitda": 3.8, "depreciation": 0.6, "capex": 0.6, "nwc_change": 0.1}], "currency": "EUR"}'
```

## Response

```json
{
  "call_id": "5f0c8a2e-3b7d-4c1e-9a64-2d8e1f7b0c93",
  "tool": "valuation_lbo",
  "status": "succeeded",
  "replayed": false,
  "cost_usd": "$0.00",
  "balance_usd": "$19.75",
  "result": {
    "uses": [
      {
        "name": "Enterprise value",
        "amount": 18.2
      },
      {
        "name": "Fees",
        "amount": 0.4
      }
    ],
    "sources": [
      {
        "name": "Senior term loan",
        "amount": 7.8
      },
      {
        "name": "Sponsor equity",
        "amount": 10.8
      }
    ],
    "entry_multiple": 7.0,
    "years": [
      {
        "year": 1,
        "ebitda": 2.8,
        "interest": 0.51,
        "taxes": 0.54,
        "free_cash_flow": 1.16,
        "repaid": 1.16,
        "debt": 6.64,
        "cash": 0.0,
        "tranches": [
          {
            "name": "Senior term loan",
            "interest": 0.51,
            "repaid": 1.16,
            "balance": 6.64
          }
        ]
      },
      {
        "year": 2,
        "ebitda": 3.0,
        "interest": 0.43,
        "taxes": 0.62,
        "free_cash_flow": 1.35,
        "repaid": 1.35,
        "debt": 5.3,
        "cash": 0.0,
        "tranches": [
          {
            "name": "Senior term loan",
            "interest": 0.43,
            "repaid": 1.35,
            "balance": 5.3
          }
        ]
      }
    ],
    "exit": {
      "year": 5,
      "multiple": 7,
      "enterprise_value": 26.6,
      "debt": 0.0,
      "cash": 0.06,
      "net_debt": -0.06,
      "equity_value": 26.66
    },
    "equity_invested": 10.8,
    "moic": 2.468583,
    "irr": 0.19809,
    "warnings": [],
    "method": "Interest on each tranche's opening balance; tax on EBITDA - depreciation - interest (never below zero); free cash flow = EBITDA - capex - change in working capital - tax - interest. It pays each tranche's amortization, then sweep tranches in order, and the rest stays as cash. Exit equity = exit multiple x last EBITDA - debt + cash; IRR = MOIC ^ (1 / years) - 1.",
    "sensitivity": {
      "entry_multiple": [
        6.5,
        7.0
      ],
      "exit_multiple": [
        6.5,
        7.0
      ],
      "irr": [
        [
          0.211178,
          0.22922
        ],
        [
          0.180505,
          0.19809
        ]
      ]
    },
    "currency": "EUR"
  }
}
```

`result`: uses, sources (each tranche and the sponsor equity), entry_multiple, years (ebitda, interest, taxes, free_cash_flow, repaid, debt, cash and each tranche), exit (year, multiple, enterprise_value, debt, cash, net_debt, equity_value), equity_invested, moic, irr, warnings, sensitivity (entry_multiple by exit_multiple irr) and method.

## Errors

| Code | Status | When | Fix |
|---|---|---|---|
| `invalid_input` | 400 | The debt covers the whole price, a tranche has neither an amount nor an EBITDA multiple, or there is no entry price. | Borrow less than the price with fees, or give entry_ebitda with entry_multiple. |

The refusals every tool can give (401 key, 402 balance, 429 limits) are on the errors page: https://conecto.chat/docs/errors.md

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