Worked example — Alpine Machinery Inc: entry EV $400m at 8x EBITDA = $50m. Year 5 EBITDA $70m at a stable multiple. Senior Debt $80m at exit. Calculate IRR and MOIC.
Inputs:
- Entry EV: $400m at 8x → EBITDA Year 0: $50m
- Equity Year 0: $150m (sponsor investment, Senior Debt $250m = 5x)
- Year 5: EBITDA $70m, multiple stable at 8x → Exit EV $560m
- Senior Debt at exit: $80m
Calculation:
```
Equity at Exit: 560 − 80 = $480m
MOIC: 480 / 150 = 3.2x
IRR (5 years): (480 / 150)^(1/5) − 1 = 26.2%
```
a 26% IRR sits in the top-quartile range for middle-market LBOs.
Deep diveShow more details
| Driver | Effect | Mechanics |
|---|---|---|
| EBITDA growth | +$160m | ($70 − $50) × 8x |
| De-leveraging | +$170m | Senior Debt $250 → $80 |
| Multiple expansion | 0 | stable 8x assumed |
| Total | +$330m | — |
EBITDA growth and de-leveraging each contribute roughly half — a healthy structure. When a senior asks where the returns come from, this disaggregation is the answer.
Question: "How much of the return is EBITDA growth versus de-leveraging?"
Answer: "EBITDA grew 50 → 70 = +40%, which added +$160m of EV. De-leveraging took Senior Debt from $250 down to $80 — so +$170m of equity build. The two effects are roughly equal. On a pure multiple-expansion story the investment thesis would be questionable — here most of it comes from the sponsor's own hand"