The LBO Return Bridge
Decompose an LBO return into operating improvement, deleveraging, and valuation multiple movement.
A good LBO model explains the source of the return, not just the size of it. The bridge is the simplest way to see whether the investment thesis depends on operating control or market luck. EBITDA Growth Growth raises enterprise value when the exit multiple is held constant. It is strongest when tied to specific initiatives: pricing, salesforce productivity, procurement, mix, churn reduction, or capacity use. Deleveraging Cash generation transfers value from lenders to equity holders. This is why working capital, capex, taxes, and interest matter. EBITDA that never turns into cash does not pay down debt. Multiple Movement Multiple…
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