medium · Private Equity value-creation
A sponsor buys a business at 11.0x LTM EBITDA and exits 5 years later at the same 11.0x multiple. Over the hold, EBITDA grows from $100M to $160M, net debt falls from $700M to $300M, and the sponsor's only equity contribution was at entry.
Using a returns-attribution (value-bridge) framework that decomposes the equity gain into EBITDA growth, multiple change, and debt paydown / FCF, what is the dollar contribution attributed to EBITDA growth?
- $660M, the EBITDA change of $60M times the exit multiple of 11.0x; with a flat multiple this equals crediting at the entry multiple, so it is neither over- nor understated.
- $1,060M, the full equity-value change, because with a flat multiple the entire gain is mechanically driven by the $60M of EBITDA growth with no separate deleveraging term.
- $600M, the $60M EBITDA change times entry leverage of 10.0x net debt/EBITDA, which isolates the operational effect from the financing structure.
- $60M, the raw EBITDA dollar increase, because the bridge attributes growth at 1.0x and assigns the remaining gain to the multiple and leverage terms separately.
Sign up free to see the explanation and track your rank →
More Private Equity value-creation practice
- What is the Equity Value of the company?
- Why might the 'Trade Sale' yield a higher valuation?
- What is the target's re-levered beta?
- If the cost of debt is 6% and the tax rate is 25%, what is the total value of the Tax Shie
- Why might the conglomerate's market capitalization be lower than the SOTP value?
- What is the equity purchase price?
- A SaaS company has an ARR of $40M that is growing at 50% per… — According to the 'Rule of
- If the platform and add-ons are the same size, what is the blended entry multiple for the