LBO & Paper LBO
A sponsor needs a 25% IRR. What MOIC does that require over 4 years? Over 5? And what does 20% over 5 years require?
Model answer
Invert the usual relationship: required MOIC = (1 + IRR)^n. At 25% over 4 years: 1.25^4 = 2.44x. At 25% over 5 years: 1.25^5 = 3.05x — essentially 'you must triple your money in five years to earn…
The full, human-reviewed answer is in the bank.
Sign up free and Daily 10 serves you 10 questions a day from all 1,500+ — or go Pro for unlimited reps.
More from LBO & Paper LBO
- What is a leveraged buyout?
- What makes a company a good LBO candidate?
- What drives returns in an LBO?
- Why does using more leverage increase equity returns (when it works)?
- At a high level, how do you calculate the IRR or money multiple on an LBO?
- Name the three primary value-creation (returns) drivers in an LBO.