Leveraged Buyout (LBO)
A leveraged buyout (LBO) is a transaction in which an acquirer uses a large amount of borrowed funds to acquire a company. The debt is secured by the target's assets and cash flows, with equity provided by the buyers and sometimes the company's management.
Example: In a typical scenario, a private equity firm finances about 70% of the acquisition with debt and 30% with equity to take control of a manufacturing company; cash flows are expected to cover debt service and support an eventual exit.
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