LBO Exit Analysis

In this lesson, we are going to build a simple exit analysis worksheet. The primary output that we are targeting through the construction of this worksheet is expected return on investment, which is critical to understand in any process, since it is the ultimate measure of investment success. Expected rate of return is generally measured as both an internal rate of return (IRR) and multiple of invested capital (MOIC) under a variety of scenarios.

Incentive equity compensation helps align investors with the management team running the business. In every control private equity transaction, it is one of the most important variables to get right. This lesson will explain how equity compensation generally works with visuals that should help cement these concepts. It will also walk through the Excel updates required to reflect this change in the LBO model.

In this lesson, we will discuss two key updates to the basic exit analysis discussed in prior lessons. The first is the addition of multiple tranches of management options, and the second is the allocation of sponsor proceeds between the limited partners (“LPs”) and the general partner (“GP”) by means of an equity waterfall.