When a company want to acquire other company, they must know the what is the price of the company pricecesly. As their principle, they does want loss in buying new company. They does not want pay a rubbish with high price.

A method of value a company is leverage buy out. According Weston et. al (2002, p. 177) The LBO concept was to purchase a public company with substant-operations, reduce debt from operating cash flows and harvest the investment by taking the firm public again within a 3 to 5 year holding period.

The buyer will buy a company with high debt. I think most English Premier League club like Liverpool and Manchester United was bought by LBO. Malcom Glazer - the famous United States busineessman bought MU with high debt and so Tom Hicks and Gillet do.

If you want make the LBO model, you should follow these steps.

1.Determine your term (time length) of model. Most analysis use five years term. Therefore you need a three years later financial statement. Calculate the growth rate by comparing year to year progress.

2.  Make capital structures follow senior debt, mezzazine debt and equity. For example you want buy the footbal club for 200 million. You divide the debt into : £ 100 million for senior debt, £ 50 million for mezzazine debt, and £ 50 for equity.

3. Put three years of historical data of income statement into microsoft excel. You should provide balance sheet and cash flow too.

4. Calculate important financial ratios such as inventory turnover, AP days outstanding and AR turnover

5.Create the debt payment schedule. You should plan how long you settle the debt.

6. Calculate the exit value of LBO. Plan your time when exit from the LBO. For example, plan to exit for five years or seven years

7. Calculate the annual return on investment based on your asumption. This value will determine whether you run the LBO or not.