What is an LBO?

A leveraged buyout (LBO) is a type of transaction in which a company is acquired using a combination of debt and equity financing. In an LBO, the acquiring company (or investor group) uses a significant amount of borrowed money, or leverage, to finance the acquisition. The company being acquired is typically referred to as the "target."

The goal of an LBO is usually to acquire the target company, restructure its operations, and then sell it at a profit. The investors expect to generate a return on their investment through the appreciation in the value of the target company, as well as through operational improvements and cost savings.

LBOs are often used as a way for private equity firms to acquire companies and create value through operational improvements and strategic changes. They can also be used by strategic buyers, such as other companies in the same industry, to acquire complementary businesses.

Overall, LBOs can be a complex and risky type of transaction, as they involve a significant amount of debt and rely on the target company's ability to generate sufficient cash flow to service the debt.