medium · Private Equity Valuation, Diligence & Value Creation
A sponsor acquires a platform at 10.0x and targets a 3.0x MOIC over 5 years. They plan to double EBITDA through organic growth and add-ons.
If they pay 6.0x for all add-ons and the exit multiple remains 10.0x, the add-on program will:
- Dilute the total return due to the complexity of integration
- Have no impact on the return if the blended entry multiple equals the organic case
- Accelerate the IRR and improve the MOIC beyond the organic case
- Only improve the IRR if funded entirely with debt
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