Leveraged Buy Out (LBO)

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Definition: Leveraged Buy Out (LBO)

Leveraged Buy-Out is a buyout using borrowed money or it can be said as an acquisition financed to a large extent by loans or other forms of debt. The borrowings are typically paid off through the future cash flow of the purchased entity and the assets of the acquired company are used as collateral for the borrowed capital.

It happens when publicly held firm wants to go private and the entire equity is purchased by current management and a small group of outside investors. These investors arrange for the financing need by substantial borrowing and thus are commonly called leveraged buyout.

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