Module IV· ExitBasic
Question
What is the 'multiple expansion' assumption at exit, and why is it typically modeled conservatively?
Answer
| Assumption | Multiple movement | IRR effect |
|---|---|---|
| Expansion | Exit > Entry | highly positive |
| Stable (standard) | Exit = Entry | neutral |
| Compression | Exit < Entry | highly negative |
IRR drivers, in order
- EBITDA growth — the most controllable
- De-leveraging — predictable
- Multiple expansion — hard to control (market sentiment)
Best practice
stable multiple as the base case, expansion only as an upside sensitivity, never as the investment thesis.
Pitch tip
'How much IRR comes from multiple expansion?' → 'Base case 0%. Upside of 1–2x is possible, but it is not a driver. Real value creation = EBITDA growth + de-leveraging.'