Back to LBO questions
What factors increase an LBO's IRR?
Answer
(1) Lower purchase price (entry multiple). (2) Less equity used (more leverage). (3) Higher revenue growth. (4) Higher EBITDA margins or margin expansion. (5) Lower interest rates on the debt. (6) Lower CapEx (more FCF for debt paydown). (7) Multiple expansion at exit. (8) Shorter hold period (compounding).
Why interviewers ask this
Memorize this list — interviewers often ask 'how would you improve this LBO's returns?' These eight levers form the standard answer. Combine them with operational improvement specifics (cost synergies, pricing, working capital optimization).
IRR drivers