A private equity (PE) firm invested equity of $85 million in XYZ Corp. for a 100%...

 

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A private equity (PE) firm invested equity of $85 million in XYZ Corp. for a 100% ownership interest. Four years later it sold XYZ for an enterprise value of 11x EBITDA. At the time of exit EBITDA was $40 million and net debt (debt less cash on hand) was $175 million. During the PE firm's holding period it granted equity interests to management representing 10% of the outstanding shares. What was the PE firm's annual rate of retium on the investment. A private equity (PE) firm invested equity of $85 million in XYZ Corp. for a 100% ownership interest. Four years later it sold XYZ for an enterprise value of 11x EBITDA. At the time of exit EBITDA was $40 million and net debt (debt less cash on hand) was $175 million. During the PE firm's holding period it granted equity interests to management representing 10% of the outstanding shares. What was the PE firm's annual rate of retium on the investment.

Answer rating: 100% (QA)

To calculate the PE firms annual rate of return we need to determine the total cash inflows and outflows over the holding period including the initial equity investment any additional equity granted t... View the full answer