What is the typical range for total debt-to-EBITDA in a large-cap LBO, and what factors influence this?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Typically 5x-7x total debt/EBITDA for large-cap LBOs, but this varies by industry, cyclicality, and market conditions. Stable, non-cyclical businesses with strong cash flows can support higher leverage. Lenders also consider asset coverage and interest coverage ratios. In recent years, leverage has been more conservative post-2008, but covenant-lite loans have allowed higher multiples in some cases.
WHAT INTERVIEWERS LISTEN FOR
- ✓Range: 5x-7x total debt/EBITDA
- ✓Industry and cash flow stability
- ✓Interest coverage as constraint
COMMON MISTAKES
- ✗Giving a fixed number without context
- ✗Ignoring market conditions
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