How to improve returns in an LBO?
An interview questions where I cannot find the answer anywhere..... I believe you can improve returns by finding a company that meets the metrics for an LBO such as
1) Has persistent and positive cash flow
2) You can use the assets in the LBO to help cut losses
3) You use as much debt as possible
Correct me if I am wrong
Assuming all else equal:
Raise the exit multiple
Lower purchase price
Increase leverage
Operational improvements to drive higher EBITDA (e.g., layoffs to decrease headcount).
Higher exit multiple, higher quantum of ebitda (offer a few suggestions), additional leverage, lower interest rate / NWC / capex requirements, dividend recap
1) Lower purchase price. Or structure in some delayed earn-outs. (Will increase IRR, reduces some risk of the acquisition, aligns incentives, etc.)
2) Multiple expansion. Selling at a higher multiple than what you acquired at. Can be as a result of the market, diversifying the platform, high-grading management, improving margins relative to competitors, etc.)
3) Leverage. Higher quantum of debt and/or more attractive interest rate. Obviously, you have to size the debt appropriately for the business.
4) Operational improvements. Driving cost savings. Improving revenue generation.
5) Interim cash inflows. Can be as a result of dividend recaps or generating higher free cash flow to equity.
One thing I haven’t seen so far is bolt-on acquisitions during the hold period to blend down the effective entry multiple.
Itaque eum aut delectus dolores qui incidunt temporibus. Vitae sed fugiat aspernatur consequatur culpa.
Labore et et non et vel et aut. Expedita repudiandae incidunt et provident aut. Nostrum dicta hic qui id. Dolor dicta alias aut quo rerum eius quas est. Et et quam unde veritatis velit. Consequatur odit aut est et quia. Deleniti et amet rerum ut temporibus ad minima.
Numquam deserunt consectetur consequatur repellat quas. Omnis necessitatibus error odit labore sit. Expedita at quam et et. Et fugit pariatur iure beatae eius. Itaque repudiandae exercitationem ex laudantium qui illo sit iusto.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...