Series 79 practice questionhardLBO Analysis - Multiple Expansion
In an LBO, which of the following scenarios would best explain an improvement in sponsor IRR due to 'multiple expansion'?
- ASelling the company at a higher EV/EBITDA than at entry✓ Correct answer
- BPaying down more debt than forecasted
- CAchieving higher EBITDA growth than expected
- DIssuing new preferred stock at exit
Explanation
Why A — Selling the company at a higher EV/EBITDA than at entry
Multiple expansion occurs when the exit multiple (EV/EBITDA) is higher than the entry multiple, boosting valuation at exit and thus IRR for the sponsor. The other options involve different return drivers.
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