Private Equity: Leveraged Buyouts Explained (Analyze Deals Like a Pro)

This week we step back from the deal-of-the-week format for a first-principles breakdown of the leveraged buyout, building from the core return mechanics all the way through to two of the biggest transactions of recent years. Using the $18 billion Hologic acquisition and the $55 billion EA buyout as live examples, Graham and Debs walk through sources and uses, debt structuring, cash conversion, and return analysis. The EA deal gets particular scrutiny. At a 30x entry multiple on $1.8 billion of LTM EBITDA, the base case numbers only work if investors are backing materially higher EBITDA, meaningful growth, and a compelling operational story. Which opens up the broader question the episode closes on: as dry powder accumulates and entry multiples get bid up, is financial engineering still a viable return driver or has private equity become a purely operational game? Timestamps: 00:00 — Cold open: what is an LBO and how does leverage multiply returns? 00:50 — Episode intro: What's the Big Deal? 01:04 — Graham checks in from Abu Dhabi 02:27 — Graham's accounting internship and how he ended up in M&A 04:25 — This week's format: an LBO explainer using Logic and EA 06:49 — What is an LBO? The house purchase analogy 08:13 — How leverage turns a 1.5x return into a 3x return 10:18 — The key LBO variables: entry, exit, leverage and debt paydown 13:33 — The classroom example: same entry and exit price, still a 3x return 14:18 — What makes a good LBO candidate 18:13 — Value creation levers: financial engineering, operational improvement, buy-and-build 21:00 — Money multiple vs. IRR: why you need both 25:45 — The Logic deal: sources, uses and the napkin LBO walkthrough 29:49 — Why existing debt has to be refinanced at close 34:54 — What is a revolving credit facility? 38:17 — Running the Logic base case returns 41:34 — Stress-testing the deal: $4.6 billion in interest over five years 46:36 — The EA deal: $55 billion enterprise value, 30x entry multiple 49:07 — What investors must be backing: EBITDA growth assumptions 52:27 — Co-investment and sovereign wealth funds in mega-deals 55:43 — The evolution of private equity: generalist to specialist 58:52 — Why financial engineering alone no longer works Topics Covered: → What is an LBO? The house purchase analogy that makes it click → How leverage amplifies equity returns — and the maths behind it → What makes a good LBO candidate: cash conversion, recurring revenues, predictable cash flows → Sources and uses: how a deal gets financed → The napkin LBO: back-of-envelope returns analysis explained → Money multiple vs. IRR: which metric matters and why → Value creation in private equity: financial engineering, operational improvement, buy-and-build → The Logic LBO walkthrough: entry multiple, debt structure, return assumptions → The EA deal: $55 billion, 30x entry multiple — do the numbers make sense? → Why the EA deal doesn't look like a traditional LBO — and what that tells us → Co-investment, sovereign wealth funds and why mega-deals need different capital structures → The evolution of private equity: from generalist to specialist and why it's harder to make money now Whether you're preparing for a private equity interview, studying for a spring week, or just want to understand how the world's biggest buyouts actually work — this is the episode for you. Why Wall Street Prep? Wall Street Prep is the trusted training provider for the world's top investment banks, private equity firms, Fortune 1000 companies and business schools. Our online training and instructor-led boot camps are direct adaptations of our corporate training, making Wall Street Prep the ideal choice for those looking to break into finance. DISCLAIMER: The information provided in this video is for educational and entertainment purposes only and does not constitute financial, investment, tax, or legal advice. Investing involves risk, and you may lose some or all of your capital. Past performance is not indicative of future results. Please conduct your own due diligence or consult with a certified professional before making any financial decisions.