Respuesta :

Strong, reliable free cash flow (FCF) creation, recurring revenue, and high profit margins from advantageous unit economics are characteristics of LBO Candidates.

What makes a good LBO candidate?

  • Strong free cash flow (FCF) generation is essential for the company to be able to adequately meet all debt obligations and reinvest in growth plans—as well as raising enough financing from debt lenders at advantageous terms—given the significant debt burden placed on the post-LBO company's capital structure.
  • Recurring Revenue: If revenue is recurring, the company's cash flows are more predictable, which directly raises a borrower's debt limit and denotes a lower risk of default for the business, such as with multi-year client contracts and planned product/service customer orders.
  • Economic Moat: Businesses with a "moat" have a differentiator that has the ability to develop a long-term competitive edge, which results in the preservation of their current market share and defense of their profit margins against outside threats (i.e. barrier against competition).

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