Tool 01 · the lab · Read: Ch. 18 — DCF, LBO & Venture Methods · Ch. 28 — Operating Playbook

LBO · MOIC · IRR Solver

Enter the deal. The solver returns the equity check, the exit equity to the sponsor, MOIC, IRR, and decomposes the value created across three sources: EBITDA growth, multiple expansion, and debt paydown.

01 Sources & Uses

Entry EBITDA ($M)

Entry multiple (x EBITDA)

Debt at close (x EBITDA)

Total funded debt as a multiple of entry EBITDA.

Transaction fees (% EV)

02 Hold & Operations

Hold period (years)

EBITDA growth (CAGR %)

Avg. debt rate (%)

Cash conversion (% EBITDA → FCF)

Free cash flow available to pay down debt, after capex / WC / tax / interest.

03 Exit

Exit multiple (x EBITDA)

Default = entry multiple. Pencil expansion when the thesis depends on it.

Mgmt rollover (% sponsor equity)

Model assumptions: all FCF goes to mandatory + sweep amortisation; no dividend recap; tax shield embedded in cash conversion; no add-on M&A; no working-capital release at exit. To stress these, change the cash-conversion or growth inputs.

04 Returns

Enterprise value at entry—

Funded debt at close—

Sponsor equity check—

Exit EBITDA—

Exit enterprise value—

Net debt at exit—

Sponsor exit equity—

05 Headlines

—

MOIC · sponsor cash returned ÷ check

—

IRR · annualised return to sponsor equity

06 Value-creation bridge

A buyout creates value in three places. If >60% of the answer comes from multiple expansion, your underwriting is a market call.

07 Red flags

How the math works Entry: EV = Entry EBITDA × Entry multiple. Equity check = EV − Debt + fees.
Hold: EBITDA grows at the specified CAGR. FCF = EBITDA × cash-conv − interest. All FCF sweeps debt. Debt cannot go below zero.
Exit: Exit EV = Exit EBITDA × Exit multiple. Sponsor exit equity = Exit EV − Net debt at exit, less management rollover.
Bridge: EBITDA growth = (ΔEBITDA × entry mult). Multiple expansion = (Δmult × exit EBITDA). Debt paydown = (entry debt − exit debt). Residual is rounding/interaction.

What a senior would ask next

What part of EBITDA growth is volume vs. price vs. margin?
If you assume exit at the entry multiple, does the deal still clear the hurdle?
What's the IRR if the cash-conversion is 10 points lower? (the COVID + supply-chain reality test)
If interest rates move 200bps, what happens to debt paydown by year 3?
Who's the buyer at exit, and at what size do they hit FTC review?

Capability drill

Try these without the solver first. Reach for it only to check.

A 5x EV/EBITDA acquisition with 3x debt, 10% EBITDA growth, 5-year hold, exit at 6x — rough MOIC?

~3.0x. Entry equity = 2x EBITDA. Exit EBITDA ≈ 1.61x entry. Exit EV ≈ 1.61 × 6 = 9.66x. Less debt of ~1x (after paydown) gives equity ≈ 8.7x EBITDA. 8.7 ÷ 2 ≈ 4.4x — but interest and incomplete paydown trim it. Plug it into the solver.

A deal MOICs 2.5x in 4 years. What's the rough IRR?

~26%. Rule of thumb: IRR ≈ MOIC^(1/years) − 1. 2.5^(1/4) − 1 = 0.257.

If your bridge says 65% of the value comes from multiple expansion, what should the IC question be?

"What is the structural reason a strategic / sponsor would pay more than we did, on the same earnings, in five years?" If the answer is "rates" or "the comps will recover," it's a market call disguised as a thesis.