Entry and Exit Multiples in an LBO

How do entry and exit pricing affect sponsor returns?

Use the LBO Model to compare a constant 6× multiple, expansion to 7× and contraction to 5× while keeping operations and financing fixed. Then compare EBITDA growth at the same exit multiple and a lower entry multiple. These are manually specified cases, not an automatic valuation attribution or sensitivity grid.

LBO entry multiple: reconcile price and sponsor funding

All money is EUR thousands. Example Company has 2026 actuals and forecasts for 2027–2031. Annual revenue 4,000 less COGS 2,000 and overhead 400 gives EBITDA 1,600. D&A and capex are 200 each, EBIT 1,400 and tax rate 25%. Working-capital changes and other operating inputs are zero; unlevered FCFF is 1,050 each year. Opening PP&E and equity are 5,000 each. NOL use is disabled; deal tax is paid in the same period.

Entry is after 2026 and exit after 2031: five years under the actual model-period dates. Entry and exit use reported EBITDA and 6× unless a case explicitly changes them, so each base EV is 9,600. Acquisition cash is explicitly overridden to 100 and existing debt to zero; other entry and exit bridge items and exit fees are zero. Purchase equity is 9,700. This acquisition cash is a supplied deal assumption, not the default book-year cash.

Base financing is 4,000 Amount debt with cash rate 6%, PIK 0%, initial-principal amortization 5%, maturity 2033, priority 0 and sweep eligible. Sweep is 50%, minimum cash 100 and fees, rollover, management dilution, other sources and distributions are zero. Sponsor equity is 9,700 − 4,000 = 5,700.

For the separate entry-price case use 5× instead of 6×. Entry EV falls to 8,000, purchase equity to 8,100 and sponsor funding to 4,100. Debt stays a supplied amount of 4,000, not a percentage of purchase price. Its schedule and exit proceeds stay unchanged. Lower price improves the return denominator here; the model does not identify an optimal or achievable entry price.

Hold EBITDA fixed and move only the exit multiple

Base exit EBITDA remains 1,600. At 6×, 7× and 5×, exit EV is 9,600, 11,200 and 8,000 respectively. All three have exit cash 847.52 and debt 90.79. Sponsor ownership is 100%. Each one-turn change in multiple therefore changes proceeds by 1,600 while leaving entry funding and debt paydown unchanged.

The constant case produces MOIC 1.8170× and IRR 12.6859%; expansion gives 15.9705% and contraction 8.9666%. These differences arise from a changed exit pricing input, not better operating performance. Use Trading Comparables for your own market-multiple evidence; no market assumptions are supplied here.

Change operating growth while keeping the exit multiple fixed

The growth case keeps entry and exit multiples at 6×. Annual revenue grows 4% from 2026, COGS stays 50% of revenue, overhead stays 400 and D&A / capex stay 200. Exit revenue is 4,866.61 and EBITDA 2,033.31. Exit EV becomes 12,199.83. The increase in EV at the same 6× is EBITDA growth multiplied by six.

The operating change also increases cash generation, accelerates debt repayment and changes retained cash. Exit debt is zero and sponsor proceeds 13,942.91, with IRR 19.5902%. The proceeds difference is therefore not purely an EV difference. The table exposes both cash and debt effects rather than claiming an automated value-creation decomposition.

Reproduce five controlled comparisons

1. Download constant 6×, 7× exit, 5× exit, 4% revenue growth and 5× entry. Import each explicitly through Manage models → Import. In Model, switch to Advanced before editing, then return to Deals → LBO. A blank workspace may require Activate; the imported files already have LBO active. The CTA opens your workspace and does not import a file automatically.

2. Check Entry method Multiple, EBITDA and 2026; Exit 2031 and EBITDA. Start with constant 6× / 6×. Change only Exit multiple to 7 and then 5 to match expansion and contraction; the debt schedule should not change.

3. For the entry-price case change only Entry multiple to 5, restoring Exit multiple 6. For growth, import the supplied operating-growth case and inspect its statement inputs in Model. It uses the same 6× / 6× and debt terms, with higher revenue and proportional COGS in each forecast year. Compare Sponsor returns, cash and debt.

Keep pricing comparisons within their scope

LBO Sources and Uses explains funding; Enterprise Value vs Equity Value explains the cash/debt bridge. LBO Capital Structure compares the financing mix, and MOIC vs IRR explains return metrics. Scenario Modeling organizes explicitly chosen operating cases.

There is no automatic value-creation attribution, bridge decomposition, LBO sensitivity engine or optimal entry-price calculation in this exercise. Holding operating performance constant isolates a pricing assumption; it does not establish that a selected exit multiple is economically justified.