Private Equity & Leveraged Buyouts
LBO Value-Creation Bridge, MoIC & Gross IRR Formula
Calculate Private Equity LBO Sponsor Entry/Exit Equity, Multiple on Invested Capital (MoIC), Gross IRR = MoIC^(1/T) - 1, and exact EBITDA-Growth / Multiple-Expansion / Debt-Paydown value attribution.
Decompose private-equity LBO gains across operational growth, exit multiple, and deleveraging!
Limited Partners (LPs) auditing a private-equity fund never stop at headline Multiple on Invested Capital MoIC = Exit_Equity / Entry_Equity and Gross IRR = (Exit_Equity / Entry_Equity)^(1 / T) - 1 — they decompose total equity value creation Exit_Equity - Entry_Equity = (E_T * M_T - D_T) - (E_0 * M_0 - D_0) into three exact, additive drivers without unallocated cross-terms: (1) Operational EBITDA Growth = (E_T - E_0) * M_0, (2) Exit Multiple Expansion = (M_T - M_0) * E_T, and (3) Net Debt Paydown (Deleveraging) = D_0 - D_T!
Verify on Entry_EBITDA E_0 = $50M (B2), Entry_EV_Multiple M_0 = 10.0x (B3 -> Entry EV = $500M), Entry_Net_Debt D_0 = $300M (B4 -> Sponsor Entry Equity = $200M), Hold_Period T = 5 years (B5), Exit_EBITDA E_T = $80M (B6), Exit_EV_Multiple M_T = 11.0x (B7 -> Exit EV = $880M), and Exit_Net_Debt D_T = $120M (B8 -> Sponsor Exit Equity = $760M): Total Equity Gain is $760M - $200M = +$560M, comprising +$300M EBITDA Growth (53.57% share), +$80M Multiple Expansion (14.29%), and +$180M Debt Paydown (32.14%); Gross MoIC is 760 / 200 = 3.8000x; and 5-Year Gross IRR is (3.80)^(1 / 5) - 1 = 0.3060 (30.60%)! Stress-test multiple contraction to M_T = 9.0x in cell B7: Exit EV drops to $720M, Exit Equity = $600M, and MoIC remains 3.0000x!
| LBO Attribution Driver ($50M@10x w/$300M Debt -> $80M@11x w/$120M Debt) | Formula | Verified Output |
|---|---|---|
| Sponsor Entry & Exit Equity ($M) | E_0*M_0 - D_0; E_T*M_T - D_T | $200.00M -> $760.00M (+$560M) |
| Sponsor Gross MoIC & 5-Yr IRR | Eq_T / Eq_0; (Eq_T / Eq_0)^(1/T) - 1 | 3.8000x MoIC; 30.60% IRR |
| Operational EBITDA Growth Share | ((E_T - E_0) * M_0) / (Eq_T - Eq_0) | 0.5357 (+$300M / +$560M) |
| Multiple Expansion + Debt Paydown | (M_T - M_0)*E_T + (D_0 - D_T) | +$80M Mult + $180M Debt = +$260M |
Sponsor Gross MoIC & Compound Annual Gross IRR Formula
Enforce Entry_Equity = E_0 * M_0 - D_0 > 0, Exit_Equity = E_T * M_T - D_T > 0 (above underwater bankruptcy wipeout), and Hold_Years T > 0!
=LET(eb_0, B2, ml_0, B3, db_0, B4, yr_h, B5, eb_t, B6, ml_t, B7, db_t, B8, eq_0, eb_0 * ml_0 - db_0, eq_t, eb_t * ml_t - db_t, IF(OR(eb_0 <= 0, ml_0 <= 0, eq_0 <= 0, yr_h <= 0, eb_t <= 0, ml_t <= 0, eq_t <= 0), "Invalid or Wipeout LBO", ROUND((eq_t / eq_0) ^ (1 / yr_h) - 1, 4)))Operational EBITDA-Growth Attribution Share Formula
Guard against zero net equity gain Eq_T = Eq_0 before dividing ((E_T - E_0) * M_0) by (Eq_T - Eq_0)!
=LET(eq_0, B2 * B3 - B4, eq_t, B6 * B7 - B8, IF(OR(ISTEXT(E4), eq_t = eq_0), "Invalid or Wipeout LBO", ROUND(((B6 - B2) * B3) / (eq_t - eq_0), 4)))Try the example
Use the original values or change them to test your understanding.