What are things that a Sponsor considers financially when looking at a target?

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IBPrep · Accepted Answer

Sponsors will consider EBITDA margin and the trajectory of margin over time, current Interest coverage ratios, how levered the company is to begin with, and how much they think they'll be able to expand EBITDA during their holding period.

They also look at FCF generation and EBITDA-to-FCF conversion, capex intensity (maintenance vs growth), working capital cycle, customer concentration, contract length and renewal rates for recurring revenue businesses, and gross margin durability across cycles.

What are things that a Sponsor considers financially when looking at a target?

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