The first thing to do in the LBO model is to set up our acquisition assumptions So we can see the current share price of our target company (which is Tumi), the current share price is 26.67 The next thing we need to do is set that premium paid We're going to pay a 20% premium initially, thus our acquisition share price is going to be one plus the 20% All multiplied by the share price So we're going to be offering 32 dollars per share We then need to multiply that by the number of shares to workout our acquisition equity value I've got my basic shares outstanding but I need net new shares from options So we've got that all the way over to the right hand side here This company has three different types of options We've got tranche 1 of stock options, then we've got PSUs or performance stock units And then service based stock units. We also notice that those last two both have a strike price of zero We're going to use the treasury stock method to calculate the net new shares here I'm going to use the MAX function, the MAX function then says you have to take your acquisition share price (lock that) I'm then going to subtract the strike price And then divide again by the acquisition share price 32 (lock that again) I want to multiply all of that by the number of options And I want the maximum of that and zero I can now copy that down And we get 0.3, 0.3, 0.3 each time So total dilution adds up to 0.9 and that's the figure that will go back into our calculation on the left hand side So net new shares, that's the 0.9 Fantastic! I then sum up my basic shares and my net new shares to get to my diluted shares outstanding of 68.52 Now let's take that further into the acquisition valuation My acquisition equity value is the number of shares Times by the acquisition share price, comes to 2,193 My acquisition EV is going to be the equity value plus net debt (I can see in this case it's actually net cash) Plus any other debt equivalents gets me an acquisition EV of 2,100.6 I now want to find the EV to EBITDA multiple For that I need my last 12 months EBITDA and we've got that a little bit further down the page Down in the income statement section We've got a historical EBITDA, 123 Great, that's all done! I can now find that multiple And it's 17.1, so I took the EV divided by EBITDA to get to 17.1 Now my EBITDA multiple at entry, not hugely important but it is important because we're going to assume our exit multiple is the same That exit multiple is very important and that gets us through our assumptions