What industries are targets for leveraged buyouts?

Companies selling into an established, well-defined market (automotive pumps and valves, soft drinks) are more conducive to an LBO transaction than those companies selling into a fledgling market (cloud computing, social networks, nanotech); while growth prospects for the company are important, they are secondary to …

What makes a company a good candidate for a leveraged buyout?

An LBO candidate is considered to be attractive when the business characteristics show sustainable and healthy cash flow. Indicators such as business in mature markets, constant customer demand, long term sales contracts, and strong brand presence all signify steady cash flow generation.

How are LBO’s financed?

A leveraged buyout (LBO) is a type of acquisition in the business world whereby the vast majority of the cost of buying a company is financed by borrowed funds. LBOs are often executed by private equity firms who attempt to raise as much funding as possible using various types of debt to get the transaction completed.

How are small business leveraged buyouts funded?

Most small business leveraged buyouts are funded using two categories of financing. The first category is the funding used to acquire the business. This funding gives the buyer “ownership” and the ability to operate the business. The second category of funding is operational financing.

Should you leverage equity to sell your small business?

Use a small amount of equity and borrow the rest. If the deal works out as planned, you stand to make great returns. The seller’s perspective is a little different. A leveraged buyout provides a vehicle to sell the business. The hard truth is that finding a buyer for a small business can be difficult and time consuming.

What type of financing is needed for a business buyout?

This type of financing provides the working capital needed to execute the business plan and grow the business. Operational funding is often a critical piece of a successful buyout. Unfortunately, there are not a lot of sources to help buyers purchase the business. Most lenders and private equity funds prefer to work with larger deals.

What are the most famous private leveraged buyouts of all time?

RJR Nabisco, Inc. Decades later, the RJR Nabisco deal of 1989 is still the most iconic and famous private leveraged buyout of all time. By pulling off the deal valued at $31 billion, or $55 billion when adjusted for inflation, Kohlberg, Kravis, Roberts & Co. is credited with spawning the boom of leveraged buyouts that followed.