While, of all the types of deals, LBOs are actually most sensitive to an increase in interest rates; there is a lot of. Success of such deals would then depend on whether cash flows from the acquired firm are large enough to service its debt. Higher interest rates simply translate to a cost of interest which will essentially destroy the profitability of the deal and jeopardize even further.
The returns of LBO may not be justified by the risk in rising interest rates times. So private equity firms are very prudent in such times. In low interest rates scenario, private equity firms become aggressive in deals as they can finance transactions at cheap costs and thus enhance the returns.

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