What is a due diligence consideration for an LBO?

In the context of a Leveraged Buyout (LBO), evaluating a company's operating performance is crucial for several reasons. First and foremost, the operating performance directly informs potential investors about the company's ability to generate cash flow, which is essential for servicing the debt incurred during the buyout. Investors want to ensure that the company can maintain or improve profitability, as this will impact the returns on their investment and the sustainability of the business under leveraged conditions.

Moreover, understanding the operational metrics allows for a more accurate projection of future financial performance, which is vital when assessing the risks associated with the LBO. This includes analyzing metrics such as revenue growth, cost management, and operational efficiencies. A thorough assessment of these factors can provide insights into how well the management team has executed operational strategies in the past and how effective they might be moving forward.

While the other considerations listed are indeed component parts of the overall assessment during due diligence, they do not encompass the direct evaluation of how the business operates on a fundamental level. For instance, market growth necessity and current valuation by public markets may be relevant to the investment case but do not reflect the internal performance metrics that indicate the company's capability to thrive post-acquisition. Similarly, focusing exclusively on historical financial performance ignores the ongoing viability