LBO Walk-through | ValueBridge App

Leveraged buyout (LBO) investments usually have debt and EBITDA-based valuations. Debt amplifies gains and generates positive gearing when enterprise valuations increase. It also amplifies losses and generates negative gearing when enterprise valuations decrease.

Video walk-through

Guide highlights

Always start with transactions

The deal’s transaction rows — platform acquisition, follow-on equity, sale, and unrealized FMV for remaining proceeds — generate gross and net returns and the consolidated entry and exit metrics that build the value creation charts.

Basic value bridge

The basic value bridge explains equity gains between invested capital and total value using EBITDA growth, multiple expansion, the leverage effect, and fund ownership — driven by changes in EBITDA, the valuation multiple, enterprise value and net debt, and the fund’s share of total equity.

Detailed value bridge

The detailed value bridge breaks EBITDA growth into revenue growth, gross margin expansion, and operating margin reduction. The leverage effect breaks into gearing (equity boost from growing enterprise valuation with debt on the balance sheet) and cashflow generation (from reducing net debt over the hold).

Until market metrics are selected, the market vs. manager bridge is not yet meaningful.

Add market multiples

Turn on market multiples in the portfolio company editor — manual values or a custom/system dataset. The App pulls the right multiples from the entry and exit dates. Total multiple expansion splits into market multiple expansion and intrinsic multiple expansion (manager-driven: buying below market, selling at a premium, or improving the quality of company EBITDA). Market multiple expansion feeds market-driven return.

Add addressable market data

Turn on addressable markets — CAGR, total growth, or a dataset. Revenue growth splits into addressable market growth and market share growth. Addressable market growth is also added to market-driven return.

Sector debt ratio and excess gearing

A debt ratio is net debt divided by total enterprise valuation, averaged over the hold. A target sector debt ratio shows what gearing would have been at a different debt level. Gearing then splits into sector gearing and excess gearing (extra gain or loss from departing that target). Sector gearing is more a risk-tolerance lens than a pure market series; when used, it is added to market-driven return.

Four measurements of the market vs manager split

The same market vs manager split appears in absolute ($) value creation, times money (relative to invested equity), relative (%) share of total equity gains, and value creation IRRs (annualized returns that account for capital and time).