Adding a bolt-on investment costing $400 for a $50 EBITDA business with sale in year 5, assuming no change in exit multiple, how do the overall returns compare?

• A. Returns go down; bolt-on IRR about 12.5%
• B. Returns go up; bolt-on IRR about 25%
• C. Returns unchanged
• D. Returns go down; bolt-on IRR about 5%

Answer: (A)

The situation hinges on how bolt-on deals affect returns when the exit assumptions don’t change. If the bolt-on costs 400 but provides no incremental EBITDA and the exit multiple stays the same, the total enterprise value at exit stays tied to the base EBITDA (50) and doesn’t rise to reflect the extra cash you invested. You’re putting in more cash upfront for the same future exit value, so the equity returns and the IRR decline as a result. With those numbers, the bolt-on would push the IRR down to a mid-teens level, roughly around 12–13%, which is why returns go down despite the bolt-on. The other possibilities would require either an uplift in EBITDA or a higher exit value, or no change in investment, which isn’t supported by the given data.