The free-cash-flow theory supports the notion that the market gain from an LBO is basically the present value of the firm's future cash flows that would otherwise have been wasted.

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The free-cash-flow theory suggests that the value gained by an LBO is based on the future cash flows that would have been wasted by the company otherwise. This is because the LBO can reduce wasteful spending and use the saved cash towards debt reduction, dividends, or other value-enhancing investments. Therefore, the market gain from an LBO can be seen as the present value of these future cash flows.

The Free-Cash-Flow Theory Supports the Notion That the Market Gain