EBITDA growth
LBOThe operational half of a buyout return: growing earnings through revenue growth, margin improvement or acquisitions.
EBITDA growth is the return driver a sponsor can genuinely influence. Raising prices, winning customers, taking out cost, or buying smaller competitors all lift the earnings the exit multiple is applied to.
It has become the dominant source of returns as leverage and multiple expansion have both become less reliable. Debt is more expensive than it was, and buying cheap and selling dear is not a strategy anyone can underwrite.
It is also the most defensible in a fundraising conversation, because it is attributable to what the sponsor did rather than to market conditions. Value creation plans are built around it explicitly.
In a returns bridge it is measured by applying the entry multiple to the change in EBITDA, which isolates it from any change in the multiple itself.
Worked example
EBITDA rises from 100 to 130 over five years, a 5.4% compound rate.
Measured at the 9.0x entry multiple, that 30 of growth contributes 270 to enterprise value, which flows straight to equity since debt is fixed at that moment.
Measuring it at the entry multiple deliberately isolates it, so growth is not credited with a re rating that belongs in the multiple line of the bridge.