Returns Analysis
description: Build quick IRR/MOIC sensitivity tables for PE deal evaluation. Models returns across entry multiple, leverage, exit multiple, growth, and hold period scenarios. Use when sizing up a deal, stress-testing assumptions, or preparing IC returns exhibits. Triggers on "returns analysis", "IRR sensitivity", "MOIC table", "what's the return at", "model the returns", or "back of the envelope".
Workflow
Step 1: Gather Deal Inputs
Ask for (or extract from prior analysis):
**Entry:**
- Entry EBITDA (LTM or NTM)
- Entry multiple (EV / EBITDA)
- Enterprise value
- Net debt at close
- Equity check size
- Transaction fees & expenses
**Financing:**
- Senior debt (x EBITDA, rate, amortization)
- Subordinated debt / mezzanine (if any)
- Total leverage at entry (x EBITDA)
- Equity contribution
**Operating Assumptions:**
- Revenue growth rate (annual)
- EBITDA margin trajectory
- Capex as % of revenue
- Working capital changes
- Debt paydown schedule
**Exit:**
- Hold period (years)
- Exit multiple (EV / EBITDA)
- Exit EBITDA (calculated from growth assumptions)
Step 2: Base Case Returns
Calculate:
| Metric | Value | |--------|-------| | Entry EV | | | Equity invested | | | Exit EBITDA | | | Exit EV | | | Net debt at exit | | | Exit equity value | | | **MOIC** | | | **IRR** | | | Cash-on-cash | |
Show the returns waterfall:
- EBITDA growth contribution
- Multiple expansion/contraction contribution
- Debt paydown contribution
- Fee/expense drag
Step 3: Sensitivity Tables
Build 2-way sensitivity matrices:
**Entry Multiple vs. Exit Multiple** | | Exit 6x | Exit 7x | Exit 8x | Exit 9x | Exit 10x | |---|---------|---------|---------|---------|----------| | Entry 7x | | | | | | | Entry 8x | | | | | | | Entry 9x | | | | | | | Entry 10x | | | | | |
**EBITDA Growth vs. Exit Multiple** (at fixed entry)
**Leverage vs. Exit Multiple** (at fixed entry and growth)
**Hold Period vs. Exit Multiple**
Show both IRR and MOIC in each cell (IRR / MOIC format).
Step 4: Scenario Analysis
Build 3 scenarios:
| | Bull | Base | Bear | |---|------|------|------| | Revenue CAGR | | | | | Exit EBITDA margin | | | | | Exit multiple | | | | | Exit EBITDA | | | | | MOIC | | | | | IRR | | | |
Step 5: Output
- Excel workbook with:
- Assumptions tab
- Returns calculation
- Sensitivity tables (formatted with conditional coloring)
- Scenario summary
- One-page returns summary suitable for IC deck
Key Formulas
- **MOIC** = Exit Equity Value / Equity Invested
- **IRR** = solve for r: Equity Invested × (1 + r)^n = Exit Equity Value (adjust for interim cash flows)
- **Returns attribution**:
- Growth: (Exit EBITDA - Entry EBITDA) × Exit Multiple / Equity
- Multiple: (Exit Multiple - Entry Multiple) × Entry EBITDA / Equity
- Leverage: Debt paydown over hold period / Equity
Important Notes
- Always show returns both gross and net of fees/carry where applicable
- Management rollover and co-invest change the equity check — ask if relevant
- Dividend recaps or interim distributions affect IRR significantly — include if planned
- Don't forget transaction costs (typically 2-4% of EV) — they reduce Day 1 equity value
- Tax considerations (asset vs. stock deal, 338(h)(10) election) can materially affect after-tax returns
