Naming the levers

Every PE return, however a deal is described, decomposes into exactly three levers, and naming which lever a given plan actually relies on is the single most useful diligence habit in this course:

  1. EBITDA growth, the business earns more by the time it's sold.
  2. Debt paydown, Lesson 16's mechanism, converting cash flow into equity value.
  3. Multiple expansion, selling at a higher multiple than was paid (the subject of Lesson 19, and the riskiest lever of the three, because it depends on the market at exit, not on anything the deal team controls).

EBITDA Growth

Equity Value
Created

Debt Paydown

Multiple
Expansion

Three levers feed equity value; the two the deal team controls (growth, paydown) are highlighted over the one the market controls (multiple expansion).

Which levers a thesis leans on

A thesis that leans almost entirely on lever 3 is a weaker thesis than one that leans on levers 1 and 2, because the deal team can directly influence growth and cash generation, but has no control over what multiple the market will pay in five years. Meridian's thesis from Lesson 5, improve pricing and retention, grow EBITDA, exit at a similar multiple to entry, deliberately leans on levers 1 and 2 and treats lever 3 as flat, not a source of return.

Meridian's 5-year walk: two controllable levers do almost all the work; the multiple stays flat by design.

Checkpoint

  • The three levers: EBITDA growth, debt paydown, multiple expansion, every return decomposes into some mix of these.
  • Levers 1 and 2: are within the deal team's control; lever 3 depends on market conditions at exit.

If anything here still feels unclear, ask before moving to Lesson 19.