HOW DEBT TO EBITDA RATIOS ARE IMPACTING DEALS IN 2025

Summary from the TLDR Founders newsletter

Everyone obsesses over valuation multiples, but the metric that actually controls private equity deals is simpler: how much debt you can pile on. In 2021, PE firms were loading companies with 7.5x EBITDA in debt, and someone would always fund it. Today, you're lucky to get 5x, and junior debt has essentially vanished. The entire PE model depends on leverage to juice returns - when debt dries up, so do the deals. That's why take-privates of companies like PagerDuty and Olo are suddenly everywhere. With rates high and lenders spooked, PE firms can only make the math work on deeply discounted public companies.