Glossary - Leveraged Buyout (LBO)
A Leveraged Buyout (LBO) is a financial transaction where a company is acquired using borrowed funds or leverage, usually by taking out loans or issuing bonds. The assets of the company being acquired and sometimes the acquiring company's assets are used as collateral. The intention is to make significant acquisitions without committing a lot of capital, with the goal of repaying the borrowed sums from the cash flow of the acquired company or through the sale of its assets.
Also known as
- Leverage Buyout
- LBO Acquisition
Use cases examples
- Purchase Agreement: Pursuant to this Leveraged Buyout, the acquisition of Company X will be financed through a combination of debt and equity, as outlined in Section 8 of the Purchase Agreement.
- Loan Agreement: The proceeds of the Term Loan outlined in this Agreement will be used exclusively for the purpose of financing the Leveraged Buyout of Company Y, including related fees and expenses as detailed in Exhibit B.
Considerations for investors
- Assessing the ability of the acquired company's cash flow to cover debt repayments.
- Evaluating the potential for financial restructuring or asset sales to optimize the return on investment.
Considerations for founders
- Understanding the implications of increased debt on the company's balance sheet and the pressures it may entail.
- The need to maintain strong cash flows to service the debt incurred during the LBO process.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.