Calculating IRR USD 500m is spent to buy out a company with USD 62.5m in EBITDA. The original contribution from the sponsor is USD 250m. The equity sponsor exits the investment in projected year 3 when the EBITDA is USD 75m, and the net debt is USD 150m. Assuming no multiple expansion, what is the IRR to the sponsor?
alright…figured it out. had to sleep off my clouded mind before jumping back into ibanking valuation… buyout multiple = $ / ebitda 500/62.5 = 8 Enterprise value = buyout multiple * EBITDA in year of sale EV = 8 * 75 EV = 600 FV = Residual Equity Value = EV - Net Debt FV = 600 - 150 FV = 450 IRR = [(FV / PV) ^(1/3)] -1 irr = 450/250 ^ .3333 - 1 irr = 21.64