What is one primary aim of private equity firms when assessing a target for LBO?

The primary aim of private equity firms when assessing a target for a leveraged buyout (LBO) is to identify aggressive cost-cutting opportunities. This focus is crucial because enhancing operational efficiency and profitability is key to generating higher returns on investment. By pinpointing areas where costs can be reduced or managed more effectively, private equity firms can drive significant improvements in the company's financial performance. These improvements enable the firm to service the debt incurred during the LBO and ultimately achieve a lucrative exit, such as a sale or public offering in the future.

While increasing management salaries, ensuring employee retention, and maintaining a stable market position are important factors in overall business strategy, they do not directly align with the primary financial objectives of maximizing returns through improved profitability and cash flow. Instead, aggressive cost-cutting aligns with the leveraged finance approach, where firms look for ways to improve the financial metrics required to support high levels of debt.