Private Equity · Operating Analysis
Your sponsor's
number.
The exact EBITDA you have to deliver to pay your sponsor what they underwrote — reconstructed from your own deal terms.
01 · The chain
What you entered
The deal, as underwritten.
These are the five numbers off your CIM. Everything downstream is arithmetic.
| Entry EBITDA | $50.00M | Hold period | 5 years |
| Entry multiple | 10x | Target MOIC | 2.5x |
| Leverage | 5× EBITDA ($250.0M) | Exit multiple | 10x |
| Debt paid down over hold | 50% | Add-on EBITDA | $15.00M at 6x |
How the number is forced
Four steps. No opinions.
01
The entry
$50.00M × 10x = $500.0M
$250.0M of debt and $250.0M of sponsor equity bought the business.
02
The promise
Sponsor underwrote 2.5x over 5 years
$250.0M of equity has to become $625.0M. That is roughly 20% a year.
03
The exit
Debt falls to $215.0M by exit
So the business has to be worth $840.0M for the equity to clear.
04
The number
At 10x on exit: $84.00M of EBITDA
A build of $34.00M on top of the $50.00M you have today — up 68%.
What this means
Your sponsor did not pick a number out of the air. They paid a price, borrowed against it, and told their investors what the equity would be worth on the way out. That promise is fixed the day the deal closes.
Work backwards from it and only one EBITDA figure satisfies it. That figure already exists. Most CEOs have never calculated it, which means they are running a plan against a target they cannot name.
02 · The bridges
Everything, added up
Two bridges that have to tie.
The first says where the EBITDA comes from. The second says where the money comes from. If either one does not add up, the plan is a story.
EBITDA bridge — to the number
| EBITDA today | $50.00M |
| + Acquired (add-ons) | $15.00M |
| + Synergies | $3.75M |
| + Organic build | $15.25M |
| Required exit EBITDA | $84.00M |
Acquisitions supply $18.75M. Your operating plan supplies $15.25M.
Equity bridge — to the return
| Entry sponsor equity | $250.0M |
| + Enterprise value growth | +$340.0M |
| + Net debt paid down | +$35.0M |
| Exit equity value | $625.0M |
Delivers 2.5x against a 2.5x target, and about 20% a year.
What this means
Read the left column as your operating plan. Every line is something a named person has to deliver, and the organic line is the only one you cannot buy.
Read the right column as your sponsor's arithmetic. Notice how much of their return comes from paying down debt rather than from growth — that portion is won or lost on cash discipline, not on ambition.
The reality check
Can the business actually fund the debt reduction you assumed?
| Cumulative EBITDA over the hold | $335.0M |
| − Interest at 9% | $104.6M |
| − Capital expenditure at 20% | $67.0M |
| − Tax at 25% | $40.8M |
| Cash available | $122.6M |
Verdict
The plan generates about $122.6M of cash against $35.0M of debt reduction. That works, with roughly $87.6M to spare.
| Debt reduction assumed | $35.0M |
Indicative assumptions, not your covenants. If this looks tight, the paydown in your model is doing work your operations have not been asked to do yet.
03 · Where value comes from
Where the return actually comes from
Sponsor equity goes $250.0M to $625.0M — a gain of $375.0M.
EBITDA growth 67%Debt paydown 33%
67% of the gain comes from growing EBITDA and 33% from paying down debt.
The variable you do not control
If the exit multiple moves, you absorb it.
Your sponsor's required equity does not change when the market changes. The entire burden lands on EBITDA.
11x exit
$76.36M
build $26.36M
10x exit
$84.00M
build $34.00M
9x exit
$93.33M
build $43.33M
8x exit
$105.00M
build $55.00M
Lose one turn and the requirement moves from $84.00M to $93.33M — another $9.33M of EBITDA, for reasons that have nothing to do with how well you run the company.
What this means
Nobody will congratulate you for the multiple, and nobody will excuse you for it either. Plan against the lower one and you have built in your own margin for error.
This is also the single best argument for starting early. Time is the only thing that lets you absorb a turn of multiple compression without heroics.
04 · Buy-and-build
Buy-and-build
What acquisitions actually buy you.
The arbitrage
| EBITDA acquired | $15.00M |
| Synergies | $3.75M |
| Capital deployed | $90.0M |
| Effective multiple paid | 4.8x after synergies |
| Worth at exit | $187.5M |
| Gross spread | $97.5M |
Two ways to the same number
| Required EBITDA, organic only | $75.00M |
| of which you build | $25.00M |
| Required EBITDA, buy-and-build | $84.00M |
| of which acquisitions supply | $18.75M |
| of which you build | $15.25M |
Buy-and-build cuts the EBITDA you build yourself by 39%, even after paying for the deals.
What this means
You are buying EBITDA at an effective 4.8x and it re-rates at 10x on the way out. That spread is why sponsors push acquisitions — it cuts what you personally have to build from $25.00M down to $15.25M.
Acquisitions are a lever on the same bridge, not a bonus on top of it. The capital is never free — it either sits on the balance sheet at exit or it comes out of the cash that would have paid down debt.
05 · Plain language
Every term on these pages
What everything means.
No jargon, no hedging. If you already know these, skip the page.
EBITDA
Earnings before interest, tax, depreciation and amortisation. The rough proxy for operating cash your business throws off. It is what your company gets priced on.
Enterprise value
What the whole business is worth — EBITDA multiplied by the multiple. Debt plus equity. Pay off the debt and what remains is the equity.
Entry / exit multiple
The number of times EBITDA the business is priced at. Ten times $50M is $500M. Set by the market and the sector, not by you.
Leverage (turns)
How much debt sits on the business, expressed as multiples of EBITDA. Five turns on $50M of EBITDA is $250M of debt.
MOIC
Multiple on invested capital. Your sponsor puts in a dollar and expects to take out 2.5. It ignores time entirely, which is why IRR exists.
IRR
Internal rate of return — the same return expressed as an annual percentage. The same 2.5x is excellent over four years and disappointing over eight.
Debt paydown
Cash the business generates that goes to lenders instead of to growth. Every dollar repaid transfers straight to equity, which is why it is half the return in many deals.
Required exit EBITDA
The figure on the cover. The EBITDA you must deliver so that, at the exit multiple and after debt, the equity clears what your sponsor underwrote.
EBITDA bridge
The line-by-line account of how today's EBITDA becomes the required figure. Price and mix, cost, growth, and M&A — each with a named owner.
Organic build
The EBITDA you have to create yourself, with the business you already own. The only line on the bridge you cannot acquire.
Add-on / buy-and-build
Buying smaller companies at lower multiples, folding them in, and having the whole thing re-rate at your exit multiple. The spread is the point.
Synergies
EBITDA you gain from an acquisition without paying more for it — duplicated overhead removed, purchasing combined. It lowers what you effectively paid.
Effective multiple paid
Capital deployed divided by EBITDA gained including synergies. Buy at six times and drive synergies and you really paid closer to five.
Multiple compression
Exiting at a lower multiple than you entered. It hands back enterprise value you already manufactured, and it is outside your control.
Sponsor equity
The cash your private equity owner actually put in. The MOIC is measured against this, and it is the number they are judged on.
The gap
The distance between the EBITDA you have and the EBITDA your sponsor underwrote. Naming it is the first honest act of the plan.
06 · Next
The number is not the plan
What to do with this.
You now have a target. A target is not a plan, and a plan your board has not signed is not a mandate. Four steps, in this order.
1
Confirm it with your chair
Take this page into a scheduled conversation and ask one question: is this the number you underwrote? Get the answer in writing. If the number is wrong, everything downstream is fiction.
2
Earn the right to grow
Rank every customer and every product by material margin before you plan a single growth initiative. Most businesses are funding losses somewhere and calling it revenue.
3
Build the bridge, name the owners
Price and mix, cost, growth, M&A. Each line dated, each line owned by one person, all of it reconciling to the number on the cover of this document.
4
Pay for the plan you wrote
If the comp plan does not pay for the bridge, the bridge does not happen. Your team executes what they are paid to execute, and nothing more.
If you want a second set of eyes
Bring me the number you are afraid to say out loud.
I have carried this number as a CEO across multiple private-equity-backed platforms. A short working conversation, your P&L, and an honest read on whether the plan in your head survives contact with the arithmetic in this document.
billcanady.com
Prepared from the figures you entered. This is a simplified single-entry, single-exit model intended to size the gap and start a conversation — not a substitute for your own financial model, your lenders' covenants, or professional advice. MOIC is a gross equity multiple. IRR is derived from MOIC and the hold period and assumes no interim distributions. Cash-flow tests use indicative assumptions of a 9% cost of debt, capital expenditure at 20% of EBITDA, and tax at 25%. Acquired EBITDA counts toward the required figure rather than on top of it.
