The ranges every PE interviewer expects you to know cold. Entry multiples, leverage, hold periods, management rollover, and why each assumption matters for returns.
Entry multiple is the biggest determinant of how much you pay — and therefore your margin of safety. The lower you buy, the more room for error.
| Sector | Low End | Mid | High End | Notes |
|---|---|---|---|---|
| Industrials / Manufacturing | 6x–7x | 8x | 10x+ | Cyclical = lower multiples |
| Consumer / Retail | 7x–8x | 9x | 12x+ | Brand value drives premium |
| Healthcare Services | 9x–10x | 12x | 15x+ | Regulatory risk compressed, reimbursement risk expands |
| Software (SaaS) | 12x–15x | 18x | 25x+ | On ARR or NTM EBITDA |
| Business Services / Tech-Enabled | 8x–10x | 11x | 14x | Recurring revenue = premium |
| Food & Beverage | 8x–9x | 11x | 14x | Branded products command premium |
When asked "what multiple would you pay?", anchor to a sector range and then explain the premium/discount drivers: growth rate, defensibility, management quality, leverage capacity, market position. Never just say a number without context.
Leverage is expressed as a multiple of EBITDA. The maximum depends on the credit market, the stability of cash flows, and the lender appetite at the time of deal.
| Tranche | Typical Range | Max Stretch | Rate (Approx.) |
|---|---|---|---|
| Revolver | 0.5x–0.75x | 1.0x | SOFR + 250–350 |
| Term Loan A (Bank) | 2.0x–2.5x | 3.0x | SOFR + 200–300 |
| Term Loan B (Institutional) | 3.0x–4.0x | 5.0x | SOFR + 300–500 |
| Senior Secured Notes | 3.5x–4.5x | 5.5x | 7%–9% |
| Senior Unsecured Notes | 4.5x–5.5x | 6.5x | 8%–11% |
| Mezzanine / PIK | 5.5x–6.5x | 7.5x | 12%–15%+ |
Lenders require minimum coverage ratios. Key ones: Debt / EBITDA ≤ 6.0x (total), Interest Coverage Ratio ≥ 2.0x (EBITDA / Cash Interest), and Fixed Charge Coverage Ratio ≥ 1.1x. If your model violates these, lenders won't lend — so the deal doesn't happen or the structure changes.
The standard assumption is 5 years. Real-world hold periods range from 3–7 years depending on exit market conditions and value creation progress.
| Hold Period | IRR | Implication |
|---|---|---|
| 3 years | ~44% | Quick flip — rare, usually only works if there's a strategic bidder |
| 4 years | ~32% | Good if multiple expansion available at exit |
| 5 years | ~25% | Standard assumption — use this unless told otherwise |
| 6 years | ~20% | Acceptable if EBITDA growth is strong |
| 7 years | ~17% | Borderline — needs high conviction on compounding |
Most conservative base case: exit at the same multiple you entered. Anything higher is upside, anything lower is a red flag in your model (you're assuming multiple expansion — explain why).
Management rollover is when the existing management team reinvests a portion of their equity proceeds into the new deal structure instead of taking cash out. Typical rollover is 5%–20% of deal equity.
| Component | Typical Range | Notes |
|---|---|---|
| Rollover Equity | 5%–20% of deal equity | Existing stake rolled, not cashed out |
| New Option Pool (MIP) | 7%–15% of equity | Time vest + performance vest |
| Carry Hurdle | 8%–12% IRR | Sponsor earns before management carry kicks in |
| Vest Schedule | 4 years, 25%/yr or cliff | Vesting accelerates on exit |
| Good Leaver / Bad Leaver | Market terms | Defines option treatment on departure |
| Scenario | Growth Rate | When to Use |
|---|---|---|
| Bear Case | 0%–2% | Recession, market share loss, pricing pressure |
| Base Case | 3%–7% | Stable industry, consistent market position |
| Bull Case | 8%–15% | Market share gains, pricing power, new products |
| High Growth (SaaS) | 15%–30% | Strong ARR expansion, low churn |
| Assumption | Standard Range | Interview Default |
|---|---|---|
| Entry Multiple | 7x–14x EV/EBITDA | Sector-dependent; 9–11x for general PE |
| Total Leverage | 4.0x–6.0x EBITDA | 5.0x–5.5x for mid-market |
| Equity Contribution | 35%–50% of TEV | 40%–45% |
| Hold Period | 3–7 years | 5 years |
| Exit Multiple | = Entry (base) | Same as entry |
| Revenue Growth | 3%–10% | 5% for stable business |
| EBITDA Margin | Flat to +200bps/yr | +50bps/yr improvement |
| TLB Rate | SOFR + 300–500 | ~8–9% all-in |
| Management Rollover | 5%–20% of equity | 10% |
| Target IRR | 20%–25% minimum | Institutional quality |