What's a reasonable target MOIC for the LBO of a $100m Rev SaaS company?
What do you think is a reasonable MOIC? Having a debate - $100m rev, 90% recurring, 25% cash flow, super long government contracts. Standard 5 year hold.
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2.5-3
Don't know much about how much debt there is but for a mature stage business you're going to be hard pressed finding a target MoC under 2.5x. probably 2.5-2.75x with a 20-23% IRR is appropriate.
As an aside, how does one develop the intuition around what MoMs and IRRs should be ?
Generally funds target 2.5x+ (20%+ IRR) over the course of five years. Infra funds are a bit less because less risky (visibility into revenue streams - long term contracts). Think like 10-15% IRR. I’m sure there are more nuances though that others can chime in on.
I never get this… there are almost no funds of size that are significantly above 2x MOIC in the long run, so how does that work when at investment stage they are all aiming for 2.5x+? Presume the gap is that some don’t play out but thay sounds like a significant amount of investments going wrong?
You're correct, real life doesn't play out like the underwriting case usually. But, you also may be comparing net vs gross returns. Most LP's report returns net of fees and carry, while the underwriting case is obviously before any fund level fees/carry are deducted, which may be the difference here.
This. Gross returns on average hit these targets
The above is the academic answer but generally I get the hunch from previous LBOs I’ve seen for similar companies. Usually seniors guide you on the necessary multiples to achieve a certain MOIC/IRR and after you do it for the same type of company you get an idea of where things should land.
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