1.2·5 min read
The Players and the Logic
A sponsor, lenders, and management each play a role. The deal works when stable cash flows can carry the debt.
By the end you can
- ✓Identify the parties in an LBO
- ✓State what makes a company a good LBO candidate
- Sponsor (the PE firm): puts in equity, controls the company, targets a return.
- Lenders: provide the debt, capped at what the cash flows can safely service.
- Management: runs the business and usually co-invests for upside.
What makes a good LBO target
Steady, predictable cash flows (to service debt), room to grow EBITDA or cut costs, modest existing debt, and a credible exit. Highly cyclical or capital-hungry businesses are riskier to lever.
Check yourself
What characteristic most helps a company support an LBO?