How do you decompose LBO equity returns into operating improvements, multiple expansion, and debt paydown?

Answer

Returns Attribution Analysis splits total equity value creation into three buckets: (1) Operating Improvements = (Exit EBITDA − Entry EBITDA) × Entry Multiple — the value created from EBITDA growth at the original purchase multiple; (2) Multiple Expansion = (Exit Multiple − Entry Multiple) × Exit EBITDA — value created from selling at a higher multiple than purchased; (3) Debt Paydown = Total Equity Proceeds − Operating Improvements − Multiple Expansion — the remainder, attributable to reducing debt with FCF over the hold.