Interview prep · LBO
LBO interview questions
Leveraged buyouts end to end — the returns drivers, the paper LBO you do in your head, debt structures, and what makes a great candidate.
Sample questions
What is a leveraged buyout?+
A financial sponsor (PE firm) acquires a company using a large portion of borrowed money, with the target's own assets and cash flows supporting the debt. The goal is to generate equity returns through debt paydown, operational improvement (EBITDA growth) and multiple expansion, then exit in ~3-7 years.
What makes a company a good LBO candidate?+
Strong, stable and predictable cash flows to service debt; low existing leverage and capex; a defensible market position; opportunities for margin/EBITDA improvement; saleable non-core assets; a reasonable entry valuation; and a clear exit path. Cash-flow stability is the single most important trait.
What drives returns in an LBO?+
Three levers
- debt paydown / deleveraging - using cash flow to repay debt grows equity value
- EBITDA growth - through revenue growth and margin expansion
- multiple expansion - exiting at a higher multiple than entry (least controllable). Leverage magnifies the equity return on all of these.
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