5.1·7 min read
The Three Levers
Every dollar of LBO equity return traces to one of three sources - growing EBITDA, exiting at a higher multiple, or paying down debt.
By the end you can
- ✓Name the three value-creation levers
- ✓Attribute a return to its drivers
- EBITDA growth - more revenue or better margins lifts the value of the business at any multiple.
- Multiple expansion - selling at a higher EV/EBITDA than you bought at.
- Debt paydown (deleveraging) - shifting value from lenders to equity as the balance falls.
Returns attribution
Pros decompose the change in equity value into these three buckets. It reveals whether a deal worked because the business genuinely improved (EBITDA growth), because the market re-rated it (multiple), or simply because debt got repaid ().
Check yourself
Selling at 11x EBITDA after buying at 9x, with EBITDA and debt unchanged, creates value through: