Quick Definition

A leveraged buyout (LBO) is a financial transaction where a company is acquired using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired and those of the acquiring company are often used as collateral.

Examples

• 1A private equity firm buys a majority stake in a publicly traded company and takes it private using mostly debt.
• 2A management team within a company buys out the firm from its current owners financed largely through debt.
• 3A large corporation acquires a smaller competitor using borrowed funds, leveraging the assets of the smaller company as collateral.

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