What is the main goal of a financial sponsor during an LBO?

The main goal of a financial sponsor during a levered buyout (LBO) is to achieve an acceptable return on investment. In an LBO, a financial sponsor—usually a private equity firm—acquires a company using a significant amount of borrowed money to meet the purchase cost. The expectation is that by leveraging the company's assets, the financial sponsor can enhance the returns on the equity invested.

Achieving an acceptable return typically involves a few key strategies, such as improving the company's cash flow, executing operational improvements, and eventually selling the company or taking it public at a much higher valuation. The financial sponsor is fundamentally focused on generating profits for its investors, and therefore, the performance of the investment directly influences the returns.

While reducing operational costs, increasing market share, and gaining competitive advantage are relevant aspects of business management and growth strategies, they are tactical approaches that may contribute to the overarching goal of maximizing returns on the investment made during an LBO. However, those aspects are secondary to the primary objective of achieving strong financial performance and returns.