LBOs literally wouldn't be the same w/o Leverage.
On average, independent sponsors raise 2.1x of senior debt-to-EBITDA (Minds' proprietary data). It ranges from 0x to 3x+. Leverage >4x is more common in middle market and large buyouts (up to 8x+ in certain cases!).
Most sponsors gravitate to raise as much debt as the deal/company can carry, because it lowers the equity gap and juices the projected returns.
Sponsors usually ask for 2.5x+ senior debt-to-EBITDA, and then they receive term sheets at or slightly below that level from SBICs and other lenders (who price and level their term sheets to be as competitive as possible) before they go broadly to equity markets.
While LPs value strong return projections, they also value strong balance sheets. Independent sponsors must strike the right balance between leverage and juicy returns.
The chart below does not include seller notes, which are somewhat less common in independent sponsor-land.
Side note: All equity (no debt) is often surprisingly compelling, so keep it in mind, especially for non-standard or highly ambitious situations.
