LBO ownership, exit and sponsor returns

Methods and settings

Calculate the sponsor share

Sponsor share = sponsor capital/(sponsor capital + rollover) × (1 − management ownership). Rollover uses the complementary capital share and is diluted by management in the same proportion. Other sources receive no ownership claim. With sponsor 400, rollover 100 and management 10%, sponsor participates at 72%, rollover at 18% and management at 10%. This is independent of the Ownership Cap Table.

Build exit equity from the paydown schedule

Select an exit year later than entry, exit Revenue/EBITDA/EBIT and a positive multiple. Exit EV is metric × multiple. Exit cash and debt come from the LBO schedule. Other bridge claims/assets inherit the entry bridge unless explicitly overridden. Subtract exit fees, floor the distributable equity residual at zero and apply sponsor participation to obtain sponsor exit proceeds.

Include interim company distributions once

Entered annual distributions reduce LBO cash in their year. The sponsor receives its participation percentage, and that sponsor amount enters its return cash-flow series. Do not enter an already sponsor-weighted amount as a company distribution unless that is deliberately the total company payout. Distributions can cause a minimum-cash shortfall and make returns unavailable.

Read MOIC and dated IRR

MOIC = (sponsor exit proceeds + sponsor interim distributions)/sponsor investment. IRR solves the discount rate for the initial negative investment and positive proceeds using actual dated year fractions between entry year end and cash-flow dates. Investment 100 and one 300 receipt exactly five years later imply 3.0× MOIC and roughly 24.6% annual IRR; bringing cash forward changes IRR even if total proceeds stay 300.

Recognize unavailable and simplified results

A modeled funding shortfall suppresses both return measures. IRR also needs a negative and positive cash flow and a solvable result. The ownership convention does not model a preferred return, hurdle, catch-up or carry waterfall. Use Analyze to test eligible exit/entry assumptions; a solved target is still conditional on the modeled bounds and simplified participation.