A story of two bridges:

Value creation in Buyout !

The data for the example
Platform
Sales 100M€ and 3% organic growth rate
EBITDA margin 23% and +1% increase per year
EBITDA to FCF conversion 55% and +0,5% increase per year
Multiple EV/EBITDA 9x at entry/ 10,5x at exit 5 years later
40% of debt (40% TLA 6 year linear
Financing amortization rate 6,5% and 60% TLB 7
years in fine rate 7,5%)
Add ons
Target A year 2 EBITDA 1,1M€ with
EV/EBITDA multiple 7,65x/Target B
year 3 EBITDA 2,2M€ with multiple
Targets
EV/EBITDA 8,1x/Target C year 4
EBITDA 3,4M€ with EV/EBITDA
multiple 8,55x
20% EBITDA margin and +0,5% per
VCP for targets
year/ Cash conversion 50%
60% with acquisition facility
Financing for deals
amortization 5 years at rate 5%
Bridge Method 1: Sales to Net debt
𝐸𝐵𝐼𝑇𝐷𝐴 ∗∆ /

𝐸𝑉/𝐸𝐵𝐼𝑇𝐷𝐴 ∗𝑀 ∗∆ 𝐷 − 𝐶𝑎𝑠ℎ − 𝐷

𝐸𝑉/𝐸𝐵𝐼𝑇𝐷𝐴 ∗ 𝑆𝑎𝑙𝑒𝑠 ∗∆

𝐸𝑉/𝐸𝐵𝐼𝑇𝐷𝐴 ∗𝑀 ∗∆
Bridge Method 2: Equity return from MOIC
Unlevered MOIC
Organic Sales growth
Unlevered MOIC EBITDA margin growth
Organic Sales growth Cash Conversion growth
EBITDA margin growth EV/EBITDA multiple
expansion Levered MOIC
Constant Cash Conversion
With Add On
Constant EV/EBITDA multiple
Levered MOIC
Unlevered MOIC Without any Add On
Organic Sales growth
EBITDA margin growth
Cash Conversion growth
Unlevered MOIC Constant EV/EBITDA multiple
Organic Sales growth
Constant EBITDA margin
Constant Cash Conversion
Constant EV/EBITDA multiple
 Conclusion: Beware about bridges
• Here my point of view:
 A bridge is NOT unique there are a LOT of ways to decompose equity return

 It is very important to distinguish ORGANIC vs ADD-ONS at the Sales/EBITDA/Deleveraging

side and it is VERY HARD to do it

 Mezzanine with Warrants/Convertible Bonds/Shareholder Loans are DEBT and should be

classified as it in the Deleveraging computation as long as it is NOT provided by the PE fund

 Value creation is RELATIVE: if your sales grew by 5% while the average sector grew by 8% did
you really created value?

 Value creation but to WHO? An equity bridge is only “return to the PE fund”. What about
value creation to customers? To suppliers? To employees?