LBO & Paper LBO
Why might a fund prefer a 1.8x MOIC in 3 years over a 2.5x MOIC in 7 years? Quantify.
Model answer
1.8x/3yr: IRR = 1.8^(1/3) - 1 ≈ 21.6%. 2.5x/7yr: IRR = 2.5^(1/7) - 1 ≈ 13.9%. The faster deal has higher IRR (~22% vs ~14%) and frees capital to redeploy, which compounds — important because LPs…
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.