Private equity: underwrite the return, not the story
A fictional fund evaluates a platform acquisition. Separate operating growth, leverage and exit valuation. The committee wants a transparent base return and a downside without multiple expansion.
Original Finance Circle LBO teaching case with fictional deal terms. Bain’s published private-equity research provides market context, not this transaction or its solution.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Original Finance Circle LBO teaching case with fictional deal terms. Bain’s published private-equity research provides market context, not this transaction or its solution.
Which assumptions can I use without requesting more data?
CAD millions. Entry EBITDA 10, enterprise-value multiple 8×, debt 45 and transaction fees 5 funded with equity. No excess cash. Five-year holding period with no interim distributions. Exit EBITDA 14, multiple 8× and debt 30. Ignore exit fees and tax.
What decision am I expected to support?
Calculate downside exit equity and IRR. Then calculate the minimum exit EV / EBITDA multiple needed for a 15% target IRR.
Build your structure
- Entry sources, uses and sponsor equity
- EBITDA, exit value and net-debt bridge
- MOIC, cash-flow timing and IRR
- Downside multiple, hurdle and diligence
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- CAD millions. Entry EBITDA 10, enterprise-value multiple 8×, debt 45 and transaction fees 5 funded with equity. No excess cash.
- Five-year holding period with no interim distributions. Exit EBITDA 14, multiple 8× and debt 30. Ignore exit fees and tax.
- Downside exit multiple is 6×, with other exit inputs unchanged. IRR assumes one entry outflow and one exit inflow.
Deal inputs
| Metric | Entry | Year-5 exit |
|---|---|---|
| EBITDA | 10 | 14 |
| EV / EBITDA | 8× | 8× base; 6× downside |
| Debt | 45 | 30 |
| Transaction fees | 5 | 0 |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Build sources and uses.
Calculate entry enterprise value, sponsor equity and base exit equity.
Why are fees included in invested equity?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- Entry enterprise value
- 80 CAD million
- Initial sponsor equity
- 40 CAD million
- Base exit equity
- 82 CAD million
Work through the calculation
- Entry EV = 10 × 8 = 80. Sponsor equity = 80 + 5 − 45 = 40.
- Exit EV = 14 × 8 = 112. Exit equity = 112 − 30 = 82.
A strong concise response
My calculation shows that entry enterprise value is 80 CAD million; initial sponsor equity is 40 CAD million; base exit equity is 82 CAD million. Fees increase the equity investment and reduce sponsor returns. Do not omit them from the entry outflow.
Answer the interviewer follow-up
Why are fees included in invested equity?
The sponsor funds them at entry. Omitting that cash outflow would overstate the sponsor return even though fees do not add operating enterprise value.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 3 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Build sources and uses. States the supplied scope, timing and metric definitions before calculating.
Fees increase the equity investment and reduce sponsor returns. Do not omit them from the entry outflow. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Public context; Finance Circle’s scenario inputs are illustrative.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.