CHPT4

LBO

acquisition of a company, division, business, or collection of assets using significant amount of debt to finance their purchase

goal of LBO

realize acceptable return on equity investment upon exit (usually within 5 years)

target returns LBO

15-20%

key point of LBO

high levels of debt (60-70%) financing is supported by FCF and asset base allowing sponsor to contribute relatively small equity investment 60-70%

characteristics of a strong LBO

strong predictable cash flow generation, leading and defensible market positions, growth opportunities, efficiency enhancement opportunities, low capex requirements, strong asset base, proven management team