What’s a good benchmark for leverage assumptions to put on a business? Got a modeling test without much assumptions - need a justification for leverage and rates across

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Varies a good amount by industry, but figure 5.5-7x for an average MM buyout deal

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Depends if you're using a 1st/2nd lien structure or a unitranche. Jefferies will get you past 6 with a best efforts syndicated deal but will price at 98 so it'll be costly.

This feels like a 5x, not cov lite.

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Totally depends on the industry / profile of the individual business.

You’re not going to be able to slap 6x on a 10% margin, 3% growth rate business with capex of 5% of sales (as an extreme example).

You can back into how much debt a business would support based on cash flow (ie think like a lender).

You can also kind of guesstimate based on total EV you’d be willing to pay, and doing an approximate debt / equity split (you typically can’t buy a business with under 30% equity capitalization but again depends on business profile)

I always started these by just throwing some assumptions at the wall and plugging them into the model, then seeing if they make sense when it’s all put together.

Try starting with something arbitrary like 5x leverage, L+600 and it should be pretty obvious if the business can take on significantly more debt or if it would bankrupt it. You can get at least a directional read that way and refine from there.

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