Module IV· Interview EssentialsBasic
Question
What characteristics make a company a 'good LBO candidate'?
Answer
Seven classic criteria
- Stable cash flows: defensive sectors (healthcare, B2B services). Volatile industries (auto OEMs, mining) are suboptimal.
- Strong market position: market leadership or niche dominance → pricing power
- Low capex: asset-light (software, services). But capex-holiday potential also makes machinery interesting
- Experienced management: stays and is motivated through sweet equity
- Value-creation potential: margin expansion, working-capital optimization, add-ons
- Exit visibility: clear buyer options
- Moderate cyclicality: generates cash for debt service even in a recession
Pitch tip
Always back the criteria with concrete, well-known buyout examples from your target sector (a recognized market leader, a carve-out, a founder-succession deal).