FinantsPrivate Equity

Return Metrics And Value Creation Bridge

Compute levered and unlevered IRR, MOIC, and equity multiple, then decompose returns into a value-creation bridge.

PPredictive Labs·Finants

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Return Metrics And Value Creation Bridge

You compute the core equity return metrics for a buyout and decompose the value created into its underlying drivers so the source of returns is transparent.

When to use

What to provide

How to work through it

  1. Establish the equity invested at entry and the equity proceeds at exit (exit EV less net debt at exit, plus interim distributions).
  2. Compute MOIC = total equity value returned / equity invested (the equity multiple).
  3. Compute levered IRR from the dated equity cash flows (initial outflow, interim distributions, exit inflow).
  4. Compute unlevered IRR by treating the deal as if funded entirely with equity (no leverage effect) for comparison.
  5. Build the MOIC / value-creation bridge, splitting the equity value gain into three contributions: - EBITDA growth — change in EBITDA at the entry multiple. - Multiple arbitrage — change in multiple applied to exit EBITDA. - Debt paydown — net debt reduction over the hold. These three plus the entry equity should reconcile to the exit equity value.
  6. If waterfall parameters are given, split total equity proceeds into LP and GP (promoted) shares after the hurdle and catch-up.

Use the user's reporting currency (default €) throughout.

Presenting results