hard · Investment Banking ma-lbo

Why is this intuition most likely WRONG about the dollar impact on equity value at exit?

1. The lost value equals one turn applied to EXIT (grown) EBITDA, not entry EBITDA; because EBITDA has grown over the hold and debt at exit is unchanged across scenarios, the equity hit is larger than one turn of entry EBITDA, not roughly equal to it.
2. The multiple compression is fully absorbed by the lower exit debt balance, since that balance is fixed by the mandatory cash-sweep paydown schedule regardless of the multiple, so equity value ends up largely unaffected and the MD overstates the true impact.
3. The lost value equals one turn of entry EBITDA scaled down proportionally by the ratio of exit net debt to entry net debt outstanding, so the realized dollar hit to equity value ends up meaningfully smaller than the MD's stated estimate suggests.
4. The relevant impact for this particular scenario belongs on equity IRR rather than on equity value, and IRR is essentially invariant to the exit multiple once the debt tranche has been fully repaid well ahead of the eventual exit date.

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