Published January 24, 2024
Exit & Returns
The purpose of the exit and returns schedule is to pull together the work we’ve done across the five other core schedules plus add a couple more key calculations to ultimately determine the exit value of our investment, the capital we deployed at the outset of the deal, and the capital we deployed and/or returned throughout the investment period (if any). Using these values, we can readily compute IRR and MOIC with fairly simple formulas.
Set up a table that looks like the following:
In the first line, calculate the Total Enterprise Value of the business at exit by multiplying the exit multiple you’ve selected by the relevant earnings metric for that period.
Next, deduct the total debt from the Debt Schedule at the exit year, and add the Ending Cash Balance (or deduct the Net Debt – however you prefer to display it).
Deduct any fees at exit you think you will need to pay (e.g., to hire a bank to sell the business, lawyers to prepare a Purchase and Sale Agreement, etc.).
Link in the Sponsor Equity Injections line from the Free Cash Flow schedule here – you need to reflect in this table all the equity that you put in and took out – so be sure to carry that in here.
Create a subtotal labeled “Gross Sponsor Equity” which will show the equity deployed and returned to the sponsor prior to settling the Management Options pool.
The Management Options payout is calculated as the Gross Sponsor Gain (i.e., the greater of all inflows minus all outflows, or 0) multiplied by the equity pool on a fully diluted basis. This means taking the pool percentage (10% in this case) and multiplying the gain by a factor of (10 / (100 + 10)).
The Net Sponsor Equity is simply the Gross less the Management Options Payout. This is what the sponsor gets to take / return to LPs (after fees, of course).
To calculate the IRR, leverage Excel’s IRR or XIRR functions. If XIRR, you will need to set up date values in each column – we hide them from displaying by coloring them in white font:
To calculate MOIC – be sure to add to the denominator any equity issuances over the hold period (making the calculation a bit more complex than dividing two numbers). See GIF below: