What is a leveraged buyout (LBO)?
A leveraged buyout (LBO) is an acquisition in which the buyer (typically a private equity firm) finances most of the purchase price with debt — often 50-80% of the deal value. The acquired company’s assets and cash flows serve as collateral and the primary source of debt service. LBOs aim to amplify equity returns through leverage: a modest improvement in enterprise value translates to outsized equity gains when most capital is debt.
How LBOs work mechanically
- Target selection: stable cash-flow generators with low capital intensity — manufacturing, services, mature SaaS.
- Debt structure: senior secured term loan, mezzanine debt, sometimes high-yield bonds.
- Equity check: PE sponsor invests 20-50% of purchase price as equity; rest is debt.
- Operating improvement: reduce costs, improve margins, grow revenue over a 3-7 year hold period.
- Debt paydown: use cash flow to reduce debt; remaining equity becomes increasingly valuable.
- Exit: sale to strategic acquirer, secondary PE buyer, or IPO.
Why leverage amplifies returns
If a $100M company grows 2x to $200M with 75% debt: equity is $25M to start, $125M at exit — a 5x equity return. The same 2x growth with no debt yields only a 2x equity return. The amplification cuts both ways: a 50% value drop with 75% debt wipes out equity entirely.
LBO benchmarks
- Leverage: 5-7x EBITDA at acquisition is typical for mid-market LBOs.
- IRR target: sponsors target 20-30% gross IRR over a 5-year hold.
- Equity multiple: 2.5-3x money on the equity check is “good”; 5x+ is exceptional.
Türkiye’de LBO
Türkiye’de LBO’lar gelişmiş pazarlara göre nadir olsa da Mediterra Capital, Turkven, NBK Capital gibi yerel PE’ler kademeli LBO yapıları kullanır. TL volatilitesi nedeniyle USD veya EUR bazlı borç finansmanı tercih edilir; Türk şirketin gelir tarafı kur korumalı (FX-hedge) olmadıkça LBO matematiği yıkılabilir. Türk halka kapanma işlemleri SPK gözetiminde adillik görüşü gerektirir.
Do: stress-test LBO models against EBITDA scenarios — modest underperformance plus high leverage equals distress.
Don’t: accept an LBO structure when the underlying business has cyclical or volatile cash flow — debt service requires predictability.