Most candidates treat a PE commercial due diligence case like a market-attractiveness essay. The interviewer is scoring a different job: at this price, under this hold, with this debt, do you buy, walk, or reprice — and which single assumption flips that call.
That is the thesis. Commercial DD in consulting interviews is a timed investment decision, not a tour of Porter and not a full LBO model. After this page you should be able to open a CDD case in under a minute, sketch a returns path that survives a no-op check, and close with a priced recommendation plus the kill switch.
What the scoring sheet actually rewards
I stop listening when a candidate lists "customer concentration, regulatory, and competition" without tying any of them to EBITDA or exit multiple. The sheet is blunt:
| Signal | What it sounds like | What I score |
|---|---|---|
| Decision | Buy / walk / buy only at X | Clear call before the last minute |
| Returns | Entry EV, equity in, exit equity, MOIC | Rough arithmetic you can defend aloud |
| Thesis | One growth or margin story underwritten | Not five slogans |
| Kill risks | Risks priced in dollars or turns of multiple | Not industry folklore |
| Flip | "If X fails, the call reverses" | Shows you know what is load-bearing |
You are not being hired to recite private equity. You are being hired to sit next to a deal team that has days, not months, before exclusivity expires. Bain's own PE research keeps stressing the same commercial truth: when asset prices stay high and debt is expensive, operating value creation has to carry the return, not multiple expansion (Bain Global Private Equity Report 2025 outlook).
Ground the room in what buyers actually pay
Candidates invent "typical" 7× EBITDA because prep folklore likes round numbers. Published deal data sit higher.
As of Bain's 2025 Global Private Equity Report (covering 2024 activity), average North American deal multiples rose about 7% to 11.9× EBITDA, and Western European multiples hit a record 12.1× (Bain PE outlook 2025). Global buyout exit value rose 34% to $468 billion, with sponsor-to-sponsor exits jumping hard off a weak base — useful context when a case underwrites an easy strategic exit at an expanded multiple.
Earlier Bain work on the 2023 cycle is still useful for leverage: debt multiples on buyouts fell to about 5.9× EBITDA, the lowest since 2012, and US buyout-backed interest coverage had dropped to about 2.4× EBITDA, the weakest since 2007 (Bain PE outlook 2024). In a case, that means interest is not a rounding error, and "we will pay down a lot of debt" needs free cash flow you can see.
Academic evidence on fund returns is likewise not "PE always prints 25% IRR." Harris, Jenkinson, and Kaplan, using Burgiss cash-flow data on nearly 1,400 US funds, find average buyout performance beat the S&P 500 by roughly 20–27% over fund life, or more than 3% per year net of fees — with far more dispersion than headline averages imply (NBER working paper W17874; Journal of Finance on JSTOR). In the interview, that means your MOIC sketch should clear a serious hurdle, not a polite 1.3×.
None of this is a substitute for the case facts. It is ballast so you do not underwrite 2012 entry multiples in a 2024–2026 story world.
The diligence spine (twenty-five minutes)
Use this order. Skip the ones that are not load-bearing for the prompt.
- Clarify the decision. Bid, pass, or reprice. Fund hurdle if given (else state yours: often ~2.0× MOIC in five years for a mid-market buyout case).
- Quality of earnings. Banker EBITDA is a claim. Haircut soft add-backs before you multiply.
- No-op returns. Hold current EBITDA and current capital structure with a flat or slightly compressed exit multiple. If that path is dead — and it usually is at today's entry prices — the entire return is the thesis.
- Underwrite one thesis. Volume, price, mix, or cost. Pick the one management can actually control.
- Re-run MOIC / rough IRR. Equity out versus equity in. Rule of 72 is fine for a bound.
- Price three kill risks in dollars of EBITDA or turns of exit multiple.
- Close with a flip. Name the assumption that reverses buy into walk (or the reverse).
Ned's rule. If your recommendation still stands after you delete the thesis and keep only the current earnings power, you underpriced the asset or you invented a multiple. Real CDD starts when the no-op case fails.
Worked example: Aether Filtration (industrial media)
Prompt. Meridian Capital is in exclusivity on Aether Filtration, a Midwest maker of pleated filter media for industrial dust collectors and commercial HVAC cartridges. Banker "normalized" EBITDA is $24m. Ask is $264m (11.0× banker). Capital structure on the table: 50% debt at 7.5% cash interest, five-year hold. Meridian underwrites exit at 10.5× (slight compression — consistent with buying into a high-multiple market). Thesis in the CIM: win a private-label OEM cartridge program and push aftermarket share of revenue from 45% to 58%, plus 150 bps of plant consolidation margin. Fund hurdle for this case: 2.0× MOIC in five years. You have twenty-five minutes. Recommend buy, walk, or reprice.
This is deliberately not warehouse SaaS and not a professional-services roll-up; those already show up elsewhere on CoachNed. Industrial aftermarket is a clean CDD: recurring MRO demand, OEM channel power, and a thesis that is either contracted or vapor.
Step 1 — Quality of earnings
Of the $24m, $2.0m is "one-time owner compensation and legal." Interviewer confirms $1.5m of that is recurring under any new owner. Quality EBITDA = $22.5m. At $264m you are really paying 11.7× quality earnings, not 11.0×.
Step 2 — No-op returns (thesis off)
| Item | Figure |
|---|---|
| EV in | $264m |
| Debt / equity | $132m / $132m |
| Annual cash interest | $132m × 7.5% ≈ $9.9m |
| Exit EBITDA (flat) | $22.5m |
| Exit EV at 10.5× | $236m |
| Debt at exit (no paydown) | $132m |
| Equity out | $104m |
| MOIC | 0.8× |
Dead. Interest alone is almost half of EBITDA; without growth or paydown the equity is underwater on a modest multiple compression. The CIM thesis is not "optional upside." It is the whole deal.
Step 3 — Underwrite the thesis (base)
Friendly but not heroic:
- Aftermarket / OEM private-label win adds $5.0m of EBITDA by year 5 (three customers signed LOIs; one large OEM still unsigned).
- Plant consolidation delivers $1.5m (150 bps on ~$100m revenue).
- Exit EBITDA = 22.5 + 5.0 + 1.5 = $29.0m.
- Exit EV at 10.5× = $304.5m.
- FCF after interest and maintenance capex pays down $20m of debt → exit debt $112m.
- Equity out = 304.5 − 112 = $192.5m.
- MOIC = 192.5 / 132 ≈ 1.46×. Five-year 1.46× is roughly 8% IRR. Fails the 2.0× hurdle.
So at the ask, even a working thesis is a walk.
Step 4 — Reprice
Try 8.5× quality EBITDA: 8.5 × 22.5 = $191m. Debt / equity = $95.5m each. Interest ≈ $7.2m. Same exit path ($304.5m EV, assume $18m paydown → debt $77.5m):
- Equity out = 304.5 − 77.5 = $227m.
- MOIC = 227 / 95.5 ≈ 2.4×. Clears 2.0× with room.
Step 5 — Kill risks priced in dollars
| Risk | Hit | Effect on the 8.5× case |
|---|---|---|
| Soft add-backs already haircut | Built in | You refused to multiply the $24m |
| Unsigned OEM exclusive goes to a rival | −$5.0m exit EBITDA | Exit EV ≈ $252m; equity out ≈ $174m; MOIC ≈ 1.8× — fails |
| Exit compresses to 9.0× on $29m EBITDA | −1.5 turns | Exit EV $261m; equity out ≈ $183m; MOIC ≈ 1.9× — fails |
| Interest coverage / rates | $7–10m cash interest | Already in the sketch; do not ignore it |
Step 6 — Close
Walk at $264m. Buy only at about 8.5× quality EBITDA (~$191m) with the OEM private-label either contracted or heavily contingency-priced. Flip assumption: if the large OEM renews with the incumbent filter supplier, cut $5m of exit EBITDA and the 8.5× case falls below 2.0× — then walk even at the lower price, or demand a further cut to roughly 7.5× ($169m) to restore a 2× path on the residual thesis.
That close is what the interviewer is listening for: a number, a yes/no, and the assumption that would reverse you.
When this tree is the wrong tool
Strategic buyer, no fund return. Use an M&A structure: standalone value, synergies, price, integration. IRR is optional color.
Ops cost-out with no transaction. Use profitability or an operations cost tree.
Org problem inside a closed deal. Use 7S, not MOIC.
If you are prepping PE recruiting rather than a consulting CDD case, use the private equity case interview guide for paper LBOs and interview format. This page is the diligence decision tree for "should Meridian buy Aether at this price."
The mistake unique to PE DD cases
Underwriting banker EBITDA and banker multiple as facts. The unique fail is returns on a lie: 11× × $24m when $1.5m of the $24m is soft and the growth is an unsigned OEM. Second unique fail: listing sector risks (China filter media, EPA dust rules) without translating them into $5m of EBITDA or 1.5 turns of exit multiple. Risks that never touch the returns sketch are decoration.
Drill this under a clock
Open a structure drill and force yourself to end with buy / walk / reprice plus one flip sentence. Then run a full voice case and notice whether your close still has a number attached.
Everything on CoachNed is open for seven days, no card; then $120 for a recruiting season or $49 a month. Start with the five-minute first rep at /start, or the live voice case at /interview.
Frequently asked questions
What is commercial due diligence in a consulting case interview?
It is a short, buy-side commercial view of whether a target's market position and growth story support the proposed price and returns. You are expected to recommend buy, walk, or reprice with rough MOIC math — not to build a full LBO model or recite PE jargon.
How detailed should the LBO math be?
Entry EV, debt vs equity, a hold-period EBITDA path for one thesis, exit EV, equity out, and MOIC (IRR as a bound). Interest matters when leverage is high. Multi-tranche debt schedules and tax shields usually waste the clock.
What return hurdle should I assume if the interviewer gives none?
State it. For mid-market buyout cases, 2.0× MOIC in about five years (~15% IRR) is a defensible classroom hurdle; some funds underwrite higher. Say the assumption aloud so the interviewer can override it.
How is PE DD different from a market entry case?
Market entry asks whether to enter and how. PE DD asks whether this asset at this price clears a fund return after risks. Attractiveness of the industry is only useful insofar as it supports or kills the MOIC path.
Do I need real industry knowledge of filtration or healthcare?
No. You need a MECE commercial structure, honest quality-of-earnings instincts, and the discipline to price risks. Sector vocabulary helps at firms that live in PE diligence; invented jargon does not. CoachNed is not affiliated with Bain, McKinsey, BCG, Deloitte, or any private equity sponsor named here.
Sources
- Private Equity Outlook 2025: Is a Recovery Starting to Take Shape? | Bain & Company — 2024 buyout investment and exit rebound, North America 11.9× and Europe 12.1× deal multiples, exit value $468 billion. Checked 2026-09-24.
- Private Equity Outlook 2024: The Liquidity Imperative | Bain & Company — 2023-cycle debt multiple ~5.9× EBITDA and US interest coverage ~2.4×. Checked 2026-09-24.
- Private Equity Performance: What Do We Know? | NBER — Harris, Jenkinson, Kaplan buyout outperformance vs S&P 500 (Burgiss data). Checked 2026-09-24.
- Private Equity Performance: What Do We Know? | JSTOR — Journal of Finance published version of the Burgiss performance evidence. Checked 2026-09-24.