Module IV· IRR / MOICIntermediate
Question
What IRR range do you typically communicate in an LBO pitch?
Answer
What
An LBO pitch typically shows three cases as a range:
| Case | Assumptions profile | IRR range |
|---|---|---|
| Downside / bank case | conservative — EBITDA −20%, multiple stable | 12–18% |
| Base case | middle assumptions — plan EBITDA, stable multiple | 20–25% |
| Upside / management case | optimistic — full growth, slight multiple expansion | 28–35% |
The sponsor optimizes for a base case of 20–25% IRR, which triggers IC approval. The range signals the risk profile.
Deep diveShow more details
Example — typical middle-market LBO pitch
| Metric | Downside | Base | Upside |
|---|---|---|---|
| EBITDA Year 5 | $40m | $50m | $65m |
| Exit multiple | 7.5x | 8.5x | 9.5x |
| Exit EV | $300m | $425m | $618m |
| Sponsor equity value | $150m | $245m | $388m |
| MOIC | 1.5x | 2.45x | 3.88x |
| IRR | 8.5% | 19.6% | 31.1% |
Common pitfalls
- Selling the "upside case" as the investment thesis: the IC asks for the base case.
- No IC approval without a downside case: the sponsor has to show the worst-case scenario.
- A range that's too narrow (e.g. 18–22%) signals a lack of sensitivity analysis.
Pitch tip
Question: "Which case is your investment thesis?"
Answer: "The base case at 22% IRR is the investment thesis. The upside case is optionality (synergies, multiple expansion), the downside is the stress test. The spread between downside and base is the most important margin of safety — the IC looks at that"