A realised buyout return decomposes into three financial levers: EBITDA growth, multiple expansion and net-debt reduction. That decomposition is built in the leveraged buyout section, along with the warning that the additive bridge has a free parameter in the cross term and is a presentation rather than a measurement unless the convention is stated.
What matters here is the layer below the EBITDA-growth line. "EBITDA grew from 18 to 30" is a result rather than an explanation, and an investment committee that cannot decompose it further cannot tell skill from a good market.
Which operating levers sit under EBITDA growth?
Four operational levers do the work, and they are not interchangeable.
Organic volume growth carries the entry margin with it and is the slowest and most defensible lever. Pricing is the fastest: a price increase carries essentially no incremental cost, so the full amount reaches EBITDA, and a 2.5% price rise on a $139 million revenue base is worth $3.475 million of EBITDA and, at an 8.0x entry multiple, $27.80 million of enterprise value. Nothing else on this list moves value that fast per unit of effort, which is why pricing diligence has become the first workstream in most buyout processes.
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Bolt-on acquisitions add EBITDA at their own margin and, when a smaller company is bought at a lower multiple than the platform will exit at, add value twice: once through the earnings and once through the re-rating of those earnings to the platform's multiple. Cost programmes, meaning procurement, footprint consolidation and overhead reduction, are the residual, and they are the lever most likely to have been half-done before the sponsor arrived.
Volume is slow and repeatable. Pricing is fast and usually available only once.
Working capital does not appear in EBITDA at all and belongs in the debt-paydown lever, where it is usually invisible. It is worth surfacing separately, because a ratio improvement and an absolute release are different things. A business whose net working capital falls from 22.0% to 16.5% of revenue while revenue grows 41% will show net working capital rising in absolute terms and still have released a large amount of cash relative to the counterfactual.
Why does the second layer matter in diligence?
The reason to insist on this second layer is a diligence reason rather than an accounting one. A sponsor's track record showing 30% internal rates of return tells you almost nothing until you know how much of it came from multiple expansion. One level down, the same holds. EBITDA growth driven by a pricing programme in a market that will not tolerate a second one is a different asset from EBITDA growth driven by volume in a market still growing.