What is Leveraged Buyout (LBO)?
A leveraged buyout (LBO) is the acquisition of a company using a significant portion of borrowed money (debt) alongside equity from a private equity fund. The target company's cash flows typically service the debt, amplifying equity returns.
In an LBO, a PE fund acquires a company by contributing equity (typically 30–50% of the purchase price) and financing the remainder with bank loans or bonds. The debt is secured against the target's assets and repaid from its operating cash flows, reducing the equity required and increasing potential returns if the deal succeeds.
LBOs are the dominant strategy in traditional buyout private equity. GPs seek companies with stable, predictable cash flows, low existing debt, and clear paths to value creation through operational improvements, bolt-on acquisitions, or multiple expansion.
Also known as: LBO, buyout