Module IV· Returns DisaggregationAdvanced
Question
How do you disaggregate in a 'value creation bridge' deck slide?
Answer
What
A value creation bridge is the standard slide in a PE pitch, showing the equity build from entry to exit as a waterfall diagram. It separates three categories:
- Operating levers: EBITDA growth, margin expansion, bolt-ons (sponsor-controlled)
- Capital structuring: de-leveraging, cash sweep (sponsor-controlled)
- Market levers: multiple expansion (market-driven)
Plus the negative effects: working-capital build, M&A friction, transaction costs. This split shows the IC what the sponsor "did" versus market luck.
Deep diveShow more details
Detailed example — middle-market platform
| Item | Equity effect | Explanation |
|---|---|---|
| Entry equity | $100m | Sponsor Year 0 investment |
| Volume growth | +$35m | Revenue growth 5% p.a. |
| Margin expansion | +$25m | EBITDA margin 18% → 22% |
| Bolt-on EBITDA | +$20m | 2 add-ons at $5m each at 6x |
| Debt repayment | +$110m | Senior Debt $200 → $90m |
| Sweep acceleration | +$20m | Above-plan cash flow to paydown |
| Multiple expansion | +$50m | 8.0x → 8.5x from size |
| Working-capital build | −$10m | Growth needs working capital |
| Transaction costs | −$10m | Add-on M&A + exit costs |
| Exit equity | $340m | – |
Common pitfalls
- Multiple expansion too large in the bridge: the IC will question it.
- Forgetting the negative effects: a flattering model.
- Add-on effects not clearly separated from organic ones.
Pitch tip
Question: "How much controllable value creation is in your bridge?"
Answer: "Operating levers plus de-leveraging together are 75–80% of the equity build. Multiple expansion is optionality (15–25%), friction is cost. A clean bridge shows sponsor performance independent of market phases"