When would you use an LBO analysis as a part of your valuation?

There are a couple situations where you would use an LBO analysis in your valuation.

1. The first situation is obviously whenever you're looking at doing a leveraged buyout of a business and want to figure out how much you could pay for a business and still hit a desired IRR (usually 15-20%).
2. In addition to the actual leveraged buyout scenario, you may want to use an LBO analysis to determine how much a PE firm would be willing to pay for a company. This amount is usually lower than what a strategic acquirer would pay for the same company. As such, the LBO analysis usually represents the lower bound of how much a company may be worth in your valuation.