LEVERAGED BUYOUTS
1. The entrepreneur must determine whether the present owner’s asking price is reasonable. Many subjective and quantitative techniques can be used in this determination. Subjective evaluations need to be made of the following: the competitiveness of the industry and the competitive position of the firm in that industry, the uniqueness of the offering of the firm and its stage in the produce life cycle, and the abilities of management and other key personnel remaining with the firm. Quantitative techniques are used to evaluate the fairness of the asking price. The price-earnings ratio of the LBO prospect should be calculated and compared with those of comparable companies, as well as the present value of future earning of the prospect and its book value