Module IV· Returns DisaggregationBasic

Question

Which 3 main drivers of equity returns are there in an LBO?

Answer

Three drivers

Driver	Middle-market
EBITDA growth (organic + M&A)	30-50%
De-leveraging	30-50%
Multiple expansion	0-25%

Example — 5-year LBO bridge

Driver	Equity effect	%
EBITDA growth (50→70 @ 8x)	+160	47%
De-leveraging (250→100)	+150	44%
Multiple expansion (8.0→8.5x → 0.5×70)	+35	10%
Other	-10	-3%
Total equity build	+335	100%

Rule of thumb

Top-quartile funds generate 60%+ from controllable drivers (EBITDA + de-leveraging). A pure multiple bet is unhealthy.

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