hard · Private Equity advanced-lbo

Why is this generally false, and in which direction does the true founder return deviate?

1. The founder's rollover sits junior to the sponsor's preferred equity stack, so his deferred tax merely shifts the timing of payment; his pre-tax MOIC lands below 2.5x while his true after-tax MOIC actually exceeds it slightly.
2. Tax deferral on the rollover means the founder's after-tax return is meaningfully enhanced relative to a fully-taxed reinvestment alternative, so his effective MOIC on the rolled capital lands above the sponsor's 2.5x figure.
3. Rolling pre-tax proceeds means the founder reinvested a larger gross base than his after-tax wealth, so on a true after-tax wealth basis his multiple is below the headline 2.5x once the deferred tax eventually crystallizes at exit.
4. Because the rollover carries over the founder's low original basis, his eventual capital gain at exit is larger, but since the 2.5x is measured strictly on invested dollars, his true return is exactly 2.5x, identical to the sponsor's.

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