If you do an LBO with $100M initial equity and exit at $400M equity in 6 years, what is your IRR?

Published On - August 19, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Using rule of 72, we can find the approximate IRR to double an investment for a given # of years.

$100M growing to $400M equity in year 6 is similar to $100M doubling to $200M equity in year 3, and then doubling again to $400M in year 6.

So by finding out what IRR is for $100M equity doubling to $200M equity by year 3, we essentially find out the IRR is for $100M growing to $400M by year 6; they are the same.

Here is the rule of 72 formula.

IRR = 72 / # of years to double
IRR = 72 / 3
IRR = 24%

Therefore, the approximate IRR is 24%.