hard · Private Equity & LBOs

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

1. The founder's rollover is junior to the sponsor's preferred stack, so his deferred tax merely shifts timing; his pre-tax MOIC is below 2.5x but his after-tax MOIC exceeds it.
2. Tax deferral on the rollover means the founder's after-tax return is enhanced versus a fully-taxed reinvestment, so his effective MOIC on the rolled capital is above the sponsor's 2.5x.
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 basis, his eventual capital gain is larger, but the 2.5x is measured on invested dollars, so his return is exactly 2.5x like the sponsor's.

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