The calculations at exit are as follows (all in million $):
- The exit value will be $500 × 2.0 (the specified multiple) = $1,000.
- Outstanding debt is $150.
- Preference shares are worth $300.
- Private equity firm’s value: 80% of the residual exit value:
(0.80)($1,000 − $150 − $300) = $440.
- Management’s value: 20% of the residual exit value:
(0.20)($1,000 − $150 − $300) = $110.
Total initial investment by the private equity firm is $145, and by management $5.
Total payoff to the private equity (PE) firm at exit is $440 + $300 = $740.
Payoff multiple for the PE firm is $740 / $145 = 5.10.
Total payoff to management at exit is $110.
Payoff multiple to management is $110 / $5 = 22.0.
