Reason for extremely high IRRs

Didn't go it in depth, but just from the face of it a non-exhaustive list:

• Sales growth is very high. 23.1% and then 15% per year
• EBITDA margin is expanding
• Result of the above two combined is massive EBITDA CAGR and high (unrealistic) resulting exit EV
• There's a mistake in your equity value calculation

Cheers

Didn't go too in depth either, but a few things that popped out immediately:

• Entry multiple of 7x for a business growing 23% and then 15% is pretty unlikely in today's environment. At least 9x is more reasonable, though more likely low double digits. 10-12x wouldn't be unfathomable at all.

*Also, where is this growth coming from? Keeping EBITDA margins and capex relatively flat on a % basis (i.e., not investing above historical rates in sales and marketing, capex, R&D, G&A to support the growth) is unlikely for at least the first couple of years. If you find business with that kind of growth rate, that doesn't require significant additional investments, it's even less likely you'll buy it for 7x. (If you do, please let me know so I can invest)

• This is more a matter of philosophy and many people do model exit multiple the same as entry, but you may want to model exit multiple ~1.0x less than entry. Even small companies can't sustain 20% topline growth and certainly not without investing in other areas, so exit multiples should reflect that. Of course there are a lot of other factors that come into play like better margins, competitive advantage, M&A environment at the time, type of business (SaaS vs. capex heavy manufacturing), etc. But I don't think it'd be overly conservative to expect some level of multiple contraction.

• You're not including refinanced debt in your uses (and therefore sources) table. You can either show the uses as buying the equity + refi debt separately, or as enterprise value in one line. It's optics but in any case, you need to include debt somehow.

• Tax rate of 25% is low, should be at 40% unless there are NOLs. Though from the looks of the currency symbol, you might not be in the US so ignore if not applicable.

Many thanks both of you for your hints! I took those into account and did some changes to the model and now end up with ~27% investor IRR (5 years) which looks much more reasonable.

Main reason for my questions were actually whether some of the model mechanics were wrong. I know that such a strongly growing business with flat EBITDA margins is not very likely. Also the multiple discussion is correct.

Two questions are left: 1. @Waving wind: Can you please point me towards the line where I miscalculated the equity valueand what is wrong there? 2. Shouldn't management returns usually be higher than investor returns? In my case it's the other way round and I wonder why. Does anyone have an idea or could point me towards the important parameters to look at in order to evaluate this?

Thanks so much!

P.S.: I updated the attached Excel model.

Thanks, found the mistake! Great help!