Leveraged Buyout (LBO)
A leveraged buyout (LBO) involves the acquisition of a company using a large amount of borrowed funds. In an LBO, the acquired company’s assets and cash flow are typically used as collateral for the debt. LBOs are common in private equity, enabling firms to maximize returns with minimal equity investment. However, they involve high risk, as the company must generate enough cash flow to service the debt.
Key Takeaways
- Acquisition using borrowed funds, typically collateralized by the target's assets.
- Common in private equity to maximize returns.
- Involves high risk due to debt servicing requirements.
- Used to minimize equity investment.
