What would be an example of an exit strategy in an LBO?

An exit strategy in a leveraged buyout (LBO) typically involves a planned method through which an investor intends to realize the value from their investment. Dividends recapitalization refers to a scenario where the company incurs additional debt to pay out dividends to its shareholders. This method provides liquidity to investors and allows them to recoup some of their initial investment before ultimately exiting completely through a sale or public offering. This strategy is particularly aligned with the goals of LBO investors who seek to enhance returns and manage cash flow.

Holding the investment indefinitely does not represent a clear exit strategy, as it implies continuing ownership rather than seeking a way to liquidate value. Issuing additional stock may dilute existing investors and is not inherently an exit strategy; rather, it could be part of a financing move to raise capital for growth. Investing in non-related businesses does not provide a direct exit for an LBO investment, as the focus is typically on improving the specific portfolio company rather than capitalizing on unrelated ventures. Hence, dividends recapitalization clearly stands out as a viable exit strategy within the context of LBOs.