Why is typical LBO lifetime ~5 years?
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Is there a fundamental / technical reason behind this? Does it return in the optimal return? What are the alternatives? What are the determining factors?
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Is it more of a "choice" thing for GPs (after they consider the tradeoffs between paying down debt, potential exit price, paying out LPs earlier)? Or is it more "constraint" -based (must hold that much to pay debt, LPs prefer this investment period, etc.)?
Alpha generating abities diminish significantly with time.
If that explains the upper limit (don’t hold too long), then what explains the lower limit? Why not exit in 2-3 years?
Certain initiatives to create value take time, e.g cost cutting etc. Also, multiple expansion needs time
I guess it is too short of a timeframe to execute on any value creation plan.
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