If you're in discussions with a private equity firm about selling your plumbing business, you'll hear the term MOIC — Multiple on Invested Capital. It's one of the primary ways PE firms measure and communicate investment returns. Understanding it helps you evaluate whether a rollover equity offer is worth taking.
MOIC: The Simple Math
MOIC measures how many times an investor got back their original investment. A 2x MOIC means they got back $2 for every $1 invested. A 3x MOIC means $3 back for every $1 in.
The formula: MOIC = Total Value Returned ÷ Total Capital Invested
If a PE firm invested $10M in your plumbing business and eventually sold their stake for $25M, that's a 2.5x MOIC. It doesn't account for the time it took — whether that was 3 years or 7 years — which is why PE firms also track IRR (Internal Rate of Return) alongside MOIC.
MOIC vs. IRR: Why You Need Both Numbers
| Metric | What It Measures | Limitation |
|---|---|---|
| MOIC | Total return multiple (how much did I get back?) | Doesn't account for time — a 3x in 3 years vs. 3x in 10 years are very different |
| IRR | Annualized return rate | Can be manipulated by timing of cash flows; less intuitive |
| Both together | Full picture of investment performance | Most sophisticated investors track both |
A 3x MOIC over 3 years is an approximately 44% IRR — outstanding by any measure. A 3x MOIC over 10 years is about 12% IRR — good but much more modest. The same MOIC, very different business.
Why MOIC Matters When You're Evaluating Rollover Equity
When a PE firm buys your plumbing business and offers you rollover equity — keeping 20–30% of the equity you're selling — they'll often describe the potential return in terms of MOIC. "Based on our target exit, your rollover could be worth 2.5–3.5x."
Here's how to evaluate that:
Step 1: Verify the target exit valuation. If they're targeting a 7x EBITDA exit and the platform will have $15M EBITDA, that's a $105M enterprise value. Your 20% rollover stake would be worth $21M if their projections hold.
Step 2: Model your cost basis. You're rolling over, say, $800K of equity (20% of a $4M deal). If you get $21M for that $800K stake, that's a 26x MOIC. If the exit is disappointing at 4x EBITDA, it might be 15x. Either way — if the platform performs — rollover equity is powerful.
Step 3: Apply probability-weighted skepticism. PE firms' projection decks tend to be optimistic. Not all platforms achieve their target exit multiple or exit on the projected timeline. Model a base case, an upside case, and a disappointment case before making decisions based on rollover equity.
What a Realistic MOIC Looks Like in Trades Roll-Ups
For PE-backed home services and plumbing roll-ups that successfully execute their strategy, 2–3x MOIC for rolled equity over a 4–7 year hold is reasonable. Some operators who were early to successful platforms have seen 5x+ returns on rollover equity. Others have seen their equity valued at less than what they rolled — especially in platforms that struggled operationally or sold in a down market.
The key variable: platform quality and execution. Your rollover equity is only as good as the PE firm's ability to build and sell the platform. Evaluate the firm, not just the number.
→ Plumbing Business Recapitalization Explained How rollover equity and MOIC targets work in a recap → What Is a Private Equity Roll-Up? The platform strategy that generates the MOICDISCLAIMER: The information on this page is provided for general informational and educational purposes only. It does not constitute — and should not be construed as — financial advice, investment advice, legal advice, tax advice, or any other form of professional advice. Nothing on this site creates a professional advisory relationship between you and Lightning Path Partners. Business valuations, transaction structures, and market conditions discussed herein are general in nature and may not apply to your specific situation. Always consult a qualified financial advisor, M&A attorney, business broker, or CPA before making any business or financial decisions. Full Terms of Use →
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