Exit multiples

Exit multiples are the valuation multiples (EV/EBITDA, EV/Revenue, P/E) applied to the projected financial metrics in the exit year of an investment — typically the final year of an LBO model's explicit projection period — to estimate the enterprise value at the time of disposal. The exit multiple assumption is one of the most significant drivers of LBO model returns: a 1x change in the EV/EBITDA exit multiple can shift the MOIC by 0.3–0.5x depending on the fund's initial leverage.

Exit multiples are calibrated against three reference points: (1) current trading multiples of listed comparable companies (adjusted for a liquidity discount), (2) recent M&A transaction multiples in the sector (which typically include a control premium), and (3) the entry multiple — a common heuristic is to assume exit at the same or a modestly lower multiple than entry, to avoid assuming multiple expansion as a systematic driver of returns. In the Franco-Swiss mid-market (VE CHF 10–80 million), EV/EBITDA exit multiples observed in 2022–2024 ranged from 6–12x depending on sector, growth profile and asset quality.

The sensitivity of LBO returns to the exit multiple must be explicitly modelled: a sensitivity table crossing exit multiple (6x to 10x) against exit EBITDA (base, upside, downside) is standard practice in PE investment memos and at Hectelion in our LBO valuation work. Assuming exit multiple expansion (buying at 7x, targeting a 9x exit) is a common but risky assumption — it requires identifying a specific strategic acquirer or a market timing advantage.

At Hectelion, we calibrate and stress-test exit multiple assumptions in our LBO valuation models and fairness opinions for Franco-Swiss transactions.