Leveraged Buyout (LBO) – part 2 – Typical LBO Candidate

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Typical LBO candidate:

Motivated & competent management to run the company after the buyout
Steady, predictable cash flows
Must be company with low requirements for CapEx and R&D. Cash flow must be used primarily to service & retire debt
Financial sponsor should have an exit strategy (e.g. Sell business to another financial or strategic buyer; IPO)
Good niche in the market for their product lines
Work force must be flexible and willing to participate, especially since focus after LBO will be more on debt repayment than expansion
No skeletons (e.g. litigation or unresolved environmental concerns)
Valuable technology already in place with no need for future CapEx
Untapped assets: real estate, exclusive licenses, contracts, patents, etc.
New company should have ability & willingness to cut costs