The investment banking interview question we’re going to go over today is “What makes a great LBO candidate?” Here’s what you should say.
“I think a great LBO candidate have three important characteristics. First, it should have a leading market position. Ideally, the business has some sort of competitive advantage against competitors. Second, it should have very stable and predictable cash flow. That’s because the private equity firm will be using a lot of leverage, and having stable and predictable cash flow is critical to pay down these debt obligations. And finally, a great LBO candidate has room for operational improvements. The private equity firm would want to implement changes to accelerate growth and improve profitability.
So to sum up, I think having a leading market position, predictable cash flow and room for operational improvements are characteristics that make a great LBO candidate. ”
That’s all you have to say for this question: “What makes a great LBO candidate”. Separately, there are plenty of other things you can say too, such as being undervalued, fast grower, and a stellar management team. Feel free to mix and match, but that’s the overall structure to your answer.