easy · Private Equity
An LBO candidate has $40 million of EBITDA and maintenance Capex of $15 million. A second candidate has $40 million of EBITDA but maintenance Capex of only $5 million.
Which is a better LBO candidate, all else being equal?
- The first candidate, because higher Capex indicates a more valuable asset base for collateral.
- Both are identical because their EBITDA is the same.
- The second candidate, because it has higher Free Cash Flow for debt service.
- The first candidate, because it provides more depreciation tax shields.
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