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UPDATED SEP 29 · 6 PIECES

Tool 道具 · LBO lab

Test where the return comes from

Fictional company, $100M EBITDA, five-year hold. Set the deal, then read the bridge. If the return depends on selling at a higher multiple than you paid, the bridge turns red. Label that clearly.

Entry multiple (× EBITDA)
Leverage (debt / EBITDA)
EBITDA growth / year
Exit multiple

Assumed: transaction fees of 2% of the entry price ($16M here), paid from sponsor equity. Each year 35% of average EBITDA is left for debt repayment after interest, taxes, capex and working capital. No interim dividends.

Equity in, incl. fees
$316M
Equity out, year 5
$667M
Multiple / IRR
2.1× · 16%
Return bridge: what created the gain
Return bridge: contribution of each driver to the equity gain
DriverContribution
EARNINGS GROWTH+$173M
DEBT REPAYMENT+$194M
MULTIPLE CHANGE$0M
TRANSACTION FEES−$16M

How the bridge splits the gain: growth is valued at the entry multiple and the multiple change is applied to exit EBITDA. A different order splits the same total differently.