What is Leveraged Buyout (LBO) ?

• A Leveraged Buyout (LBO) is a financial transaction in which a company or a group of investors acquires another company using a significant amount of borrowed money, typically in the form of debt financing.
• In an LBO, the acquiring company, often referred to as the "sponsor," uses a combination of its own capital and borrowed funds to purchase the target company.
• The key characteristic of an LBO is the high level of leverage employed, hence the term "leveraged" in the name.
• The borrowed funds are secured by the assets of the target company, and the cash flows generated by the acquired business are used to repay the debt over time.
• The objective of an LBO is to use the acquired company's assets and cash flows to generate returns that exceed the cost of the borrowed funds, thereby creating value for the acquiring investors.
• LBOs are typically executed by private equity firms or financial investors seeking to acquire controlling stakes in companies.


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