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PE LBO: The Debt Paydown Engine.

Calculates how Private Equity firms achieve massive 25% Internal Rates of Return (IRR) not by growing companies, but by forcing the acquired company to aggressively pay down its own acquisition debt.

## The Mortgage Payment Miracle

When a Private Equity firm buys a $100M HVAC company via a Leveraged Buyout (LBO), they typically only put up $30M in cash. They borrow the other $70M. Why are PE returns so incredibly high even if the underlying company performs moderately?

### FAQ

**Q: How do they double their money without growing the business?**
A: Debt paydown. The HVAC company generates $12M a year in free cash. Every single dollar of that is used to pay down the $70M loan. After 5 years, $60M of debt is wiped out. If the PE firm sells the company for the EXACT same $100M they bought it for, they only owe $10M to the bank. They keep $90M. Their initial $30M check turned into $90M (a 3.0x return or a 24.5% IRR) without growing revenue by a single penny.