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Investment Banks, Hedge Funds, and Private Equity, 2nd Edition by David Stowell

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17

LBO Financial Model

The material in this chapter should be cross-referenced with the following case: Toys “R” Us LBO.

As previously discussed, targets for LBO transactions are typically companies in mature industries that have stable and growing cash flow that can be used to service large debt obligations and, potentially, pay dividends to the financial buyers. In addition, targets usually have low capital expenditures, low leverage, and assets that can be sold. Financial buyers generally target an exit event within three to seven years, which is usually accomplished through either an IPO or M&A sale to a strategic buyer or, sometimes, to another financial buyer. Financial buyers have historically targeted an IRR on their investments of above ...

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