An ideal LBO target would be unlevered, inefficiently managed, with stable cash flows, low required capital expenditures, and significant excess non-core assets.

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BlackTom AI · Accepted Answer

Consider the statement and what makes a good LBO target in practice. 
Option (True): The claim that an ideal LBO target would be unlevered, inefficiently managed, with stable cash flows, low required capex, and significant excess non-core assets is not accurate. 
First, ideal LBO targets are typically selected because they can support a high debt load; being unlevered would actually limit the use of leverage, which is a core feature of LBOs. 
Second, while stable cash flows are desirable, many LBO targets are not described as inefficiently managed; in fact, potential for operational improvements is a key driver of the transaction, so some inefficiency can be acceptable, but the broader emphasis is on the ability to generate predictable cash flows to service debt. 
Third, low capital expenditures (capex) are favorable because they reduce ongoing cash needs, but the phrase must be balanced with the view that some capex may be required to sustain or grow cash flows; the overall profile typically favors steady, manageable capex rather than minimal or zero capex. 
Finally, significant excess non-core assets can be attractive as sources of value to monetize or divest to fund the debt portion, but this is only one component; the other attributes (leverage capacity, cash-flow stability, and improvement potential) are more central to a successful LBO profile. 
In summary, the statement misstates the levered nature of typical LBO targets and overemphasizes unchanging, inefficient management, making it an inaccurate description of an ideal LBO target.

COMM_V 370 101-108 2025W1 COMM 370 2025W1 - Practice Final

An ideal LBO target would be unlevered, inefficiently managed, with stable cash flows, low required capital expenditures, and significant excess non-core assets.

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