What Makes a Good LBO Candidate?

A good leveraged buyout candidate can support substantial debt while continuing to operate, invest, and grow. Understanding the characteristics private equity firms look for—especially stable cash flow, manageable capital expenditures, and debt capacity—is essential for LBO modeling, deal interviews, and investment banking recruiting.

Author: Michael Harris Updated 4 min read

Start With the LBO’s Basic Economics

In a leveraged buyout, or LBO, a private equity firm acquires a company using a combination of equity and borrowed money. The acquired company’s cash flow is then used to pay interest and reduce debt over the holding period.

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