Private equity investment decisions follow a structured, quantitative-plus-qualitative framework. Here’s what actually happens behind the scenes.

The quantitative toolkit

1. EV/EBITDA multiples

Most common valuation metric for mature companies. 2025–2026 typical ranges:

Per ScaleX Invest 2025 data.

2. Revenue multiples

Used for high-growth, unprofitable, or tech/SaaS companies. Benchmark: when revenue growth exceeds 20–30% annually, firms often use revenue multiples.

3. IRR and MOIC targets

• Target IRR: 20–25% net for mid-market PE; 15–18% for larger buyouts.
• Target MOIC: 2.5x–3x net over 5–7 year hold period.
• Leverage: Typically 40–70% debt on purchase price.

The qualitative screen

1. Market position: Market leader or strong #2 with sustainable advantages.
2. Recurring revenue: Predictable, subscription-like cash flow beats project-based.
3. Customer concentration: No single customer >20–30% of revenue (Hartmann Rhodes 2026).
4. Management team: Willing to partner; preferably proven operators.
5. Growth avenues: Multiple paths — geography, product, M&A.
6. Operational leverage: Cost structure allows margin expansion.

The DD framework (Street of Walls summary)

1. Commercial DD: Market position, TAM, competitive moat, pricing power.
2. Financial DD:
   • Quality of Earnings (QoE): Adjusts historical EBITDA.
   • Pro-forma analysis: Normalizes for one-time events.
   • Debt capacity modeling: Tests leverage scenarios.
3. Legal DD: Contracts, IP, litigation, regulatory exposure.
4. Operational DD: Systems, management, supply chain, scalability.
5. Tax DD: Tax efficiency of purchase structure, post-close tax optimizations.

Value-creation levers PE firms deploy

1. Operational improvements: Cost optimization, pricing, procurement.
2. Strategic repositioning: Product mix, geography, customer segment.
3. Add-on acquisitions: Platform + tuck-ins.
4. Capital structure optimization: Debt paydown, dividend recaps, refinancing.
5. Executive upgrades: Selective leadership changes.

Harvard Business School data (HBR research)

Per the seminal Gompers, Kaplan, and Mukharlyamov study of PE firms:

• Majority of PE firms (>60%) primarily rely on IRR + MOIC for evaluation.
• Operational improvements rank as the most important value-creation lever.
• Capital structure less important than often assumed.

What makes a good LBO candidate

1. Stable, predictable cash flow to service debt.
2. Strong collateral (real estate, IP, recurring contracts).
3. Opportunity for margin expansion or revenue growth.
4. Reasonable purchase multiple relative to industry benchmarks.
5. Exit pathway — strategic buyer, IPO, or sponsor-to-sponsor.

NYC-specific PE context

NYC is home to:

• Blackstone ($10B Capital Opportunities V announced April 2026).
• KKR ($23B North America PE announced April 2026).
• Apollo Global Management.
• Carlyle Group.
• Warburg Pincus.
• CVC Capital Partners (NYC office).
• General Atlantic.

These firms manage trillions combined and make NYC the world capital of PE.

Practical takeaway

1. Operators: Understand what PE buyers look for — recurring revenue, clean QoE, operational leverage.
2. Founders: If you’re at $20M+ EBITDA and profitable, PE is a realistic exit option.
3. LPs: PE returns more predictable than VC; allocate across both for risk-adjusted exposure.

Sources

1. ScaleX Invest — EBITDA multiples: https://www.scalex-invest.com/blog/when-to-use-revenue-or-ebitda-multiples-in-private-equity
2. Street of Walls — PE Investment Criteria: https://www.streetofwalls.com/finance-training-courses/private-equity-training/private-equity-investment-criteria/
3. HBS “What Do Private Equity Firms Say They Do?”: https://www.hbs.edu/ris/Publication%20Files/15-081_9baffe73-8ec2-404f-9d62-ee0d825ca5b5.pdf
4. KKR on PE value creation: https://www.kkr.com/alternatives-unlocked/private-equity