hard · Private Equity & LBOs

A sponsor buys a target for $1,000m EV at 5.0x entry EBITDA of $200m, funded with $600m debt and $400m equity. At exit in Year 5, EBITDA has grown to $260m and net debt has been paid down to $300m. The sponsor's LPs are quoting a 2.0x MOIC but the deal team insists the multiple-expansion contribution to value creation is exactly zero.

Both can be true only if the exit multiple equals which value, and what does that imply about the dominant value driver?

Exit multiple is 5.0x (flat), so equity value is $1,300m − $300m = $1,000m for a 2.5x MOIC; the team is right and deleveraging dominates.
Exit multiple is 5.0x (flat), giving exit equity of $1,300 − $300 = $1,000m and only 2.0x at the equity level after fees; EBITDA growth dominates.
Exit multiple is 5.0x (flat); equity value is $260m × 5.0 − $300m = $1,000m, a 2.5x MOIC, so the LP's 2.0x is wrong.
Exit multiple is 5.0x (flat), making exit equity $1,300 − $300 = $1,000m; with multiple expansion zero by construction, EBITDA growth plus deleveraging together produce the 2.5x — but the LPs' 2.0x can't reconcile without fees or a dividend leakage.

Both can be true only if the exit multiple equals which value, and what does that imply about the dominant value driver?

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