Course · Act I: The Buyout · Chapter 3
LBO returns: IRR and MOIC
Where buyout returns come from: EBITDA growth, debt paydown and the exit multiple. MOIC and IRR worked out, and why debt lifts the return and the risk together.
Key terms
- MOIC
- Multiple on invested capital: money out ÷ money in. Says nothing about how long it took.
- IRR
- Internal rate of return: the yearly rate that turns the money in into the money out. With one in and one out, MOIC^(1/years) − 1.
- Debt paydown
- Using the company’s cash to repay buyout debt. Each dollar repaid is a dollar more for the equity at the sale.
- Multiple expansion
- Selling at a higher EV/EBITDA multiple than you bought at. The engine nobody controls.
- Exit
- The sale that ends a buyout: to another fund, a company, or the stock market.
“Leverage and Returns” is part of the full course: 7 puzzles on lbo returns: irr and moic. Biscuit Barrel is fictional; the frauds in the notes are real, settled cases. Try this act’s free chapter, “What Does It Cost?”, first.
“Leverage and Returns” is in Act I: The Buyout. 7 puzzles, unlimited retries.
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