Which of the following is a key criterion for a successful LBO candidate?

A strong management team is a key criterion for a successful leveraged buyout (LBO) candidate because effective leadership is crucial in navigating the complexities that arise from increased debt levels. In an LBO, the acquirer often takes on significant financial leverage to fund the purchase, meaning that the company must generate sufficient cash flow to service this debt while also investing in growth and operations.

The management team's ability to execute a clear strategic vision, make sound operational decisions, and enhance the company's profitability can significantly impact the success of the LBO. Investors rely on the management team to identify cost-cutting opportunities, improve operational efficiency, and drive revenue growth, all of which help ensure adequate cash flow to meet debt obligations.

Other choices do not contribute positively to the success of an LBO. High future capital requirements could strain cash flow, making it difficult to meet debt service obligations. An overleveraged balance sheet suggests the company is already carrying too much debt, increasing the risk of default and complicating financing conditions. Unpredictable cash flow creates uncertainty, making it challenging to manage debt and plan for future expenses. Thus, a strong management team is essential in driving performance and ensuring the sustainability of the business post-LBO.