easy · Private Equity pe-core
A PE firm is considering the acquisition of StableCo, a company with high capital expenditures and cyclical revenue.
Why might this company be considered a poor candidate for a traditional leveraged buyout?
- The enterprise value is too low to support institutional debt
- Cyclical revenues automatically lead to higher entry multiples
- Stable companies do not offer enough operational upside for sponsors
- The high capex reduces the free cash flow available for debt service
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