Abstract

Monte Carlo Analysis for a Private Equity Transaction in Excel

This article demonstrates a Monte Carlo analysis in Excel for a private equity transaction. The approach provides a probability-based assessment of future outcomes (i.e., waterfall calculations), with key model inputs randomly sampled from defined probability distributions. With minimal VBA programming, numerous Monte Carlo trials are generated and recorded in a second worksheet. This output can then be analyzed to assess the riskiness of the transaction. Further, because the analysis is performed entirely in Excel, it is immediately accessible to the practitioner. It is also very “transparent” in its execution, unlike “black box” statistical software and AI-based tools.

KEY TAKEAWAYS:

To produce a Monte Carlo simulation for a private equity transaction model in Excel, key parameters are randomly drawn from specified probability distributions. Output data (i.e., waterfall calculations of the transaction) from the simulation trials are then examined to assess the riskiness and benefits of the transaction.

With minimal VBA programming, the model generates numerous Monte Carlo trials, automatically recording each trial’s output data in a second worksheet. The user can easily adjust the number of trials.

Because the analysis is performed entirely in Excel, it is immediately accessible to the practitioner. It is also very “transparent” in its execution, unlike “black box” statistical software or AI-based tools.


Document Type

Working Paper

Publication Date

10-16-2025

Publisher Statement

Please note that downloads of this working paper are for private/personal use only. Do not cite without permission.

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