What is a leveraged buyout (LBO)?
A Leveraged Buyout (LBO) is an acquisition in which the buyer — typically a private equity firm — finances a substantial portion of the purchase price with debt secured against the target company’s assets and cash flow, rather than the buyer’s own equity. The acquired company’s free cash flow is then used to service and amortise the debt.
LBO structures require detailed financial modelling, lender covenants, security packages and post-closing operating plans. LBOs are uncommon for early-stage startups but typical for mature businesses with stable cash flow.