Level 5: Analysis · Exercise 58 of 60 · Pro

Buyout exit: money multiple and IRR

A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.

The task

A sponsor buys a business and sells it after the years in B7. Fill the entry equity (B10: entry EBITDA times entry multiple, less debt at entry), exit EBITDA (B11: entry EBITDA grown by B5 for the years held), exit enterprise value (B12), debt at exit (B13: entry debt less what was repaid), exit equity (B14), the money multiple (B15) and the IRR (B16: the multiple raised to the power of 1 over the years held, minus 1).

What this exercise teaches

Returns come from three sources: EBITDA growth, the multiple paid versus received, and debt paid down with the business's own cash. Splitting the multiple from the IRR shows the cost of time: the same multiple over seven years instead of five is a much lower IRR.

A hint if you get stuck

With one cash flow in and one out, the IRR has a closed form: multiple ^ (1 / years) - 1. A 2.5x multiple over five years is about 20% a year, not 30%.