What’s a Leveraged Buyout

What’s a Leveraged Buyout - Business case 1...

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Business case 1 – Technical Document 6 1 What’s a Leveraged Buyout? A Leveraged Buyout (LBO) is a financial set-up especially designed to enable an investor to acquire a company by financing the acquisition price by a large portion of debt. The large debt financing used under this investment structure allows the acquirer (generally a private equity fund along with the management) to put relatively little money on the table 1 in the form of equity financing. He will then be in a position to make a significant capital gain by selling the company after a short period of time 2 provided that the cash flows generated by this company during the LBO period are large enough to repay the initial debt. This operation does not change the nature of the firm’s operating activities and only changes its capital structure by reducing the equity financing portion and increasing the debt financing portion. In practice, the structuring of an LBO is done through the creation of a new investment vehicle (New
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This note was uploaded on 01/31/2012 for the course PROB 343 taught by Professor Hin during the Spring '11 term at Adrian College.

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What’s a Leveraged Buyout - Business case 1...

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