leveraged buyout (LBO)
A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.
KEY TAKEAWAYS
- A leveraged buyout (LBO) occurs when the acquisition of another company is completed almost entirely with borrowed funds.
- Leveraged buyouts declined in popularity after the 2008 financial crisis, but they are once again on the rise.
- In an LBO, there is usually a ratio of 90% debt to 10% equity.
- LBOs have acquired a reputation as a ruthless and predatory business tactic, especially since the target company’s assets can be used as leverage against it.
― Leveraged Buyout (LBO) Definition: How It Works, with Example