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LBO
(Leveraged Buyout)
An LBO (Leveraged Buyout) is an acquisition where a company is purchased using significant borrowed funds (often 70-90% debt), with the target's cash flows securing the debt.
Private equity firms (e.g., KKR, Blackstone) use LBOs to acquire firms with stable EBITDA, aiming to improve operations and exit via IPO or sale. The 1980s LBO boom featured iconic deals like RJR Nabisco ($25B). High D/E ratios make LBOs risky—if cash flows fall, bankruptcy follows (e.g., Toys 'R' Us). Lenders assess IRR projections (targeting 20%+) and debt/EBITDA ratios (typically <6x). The SEC scrutinizes LBO disclosures in public-to-private deals.
Private equity firms (e.g., KKR, Blackstone) use LBOs to acquire firms with stable EBITDA, aiming to improve operations and exit via IPO or sale. The 1980s LBO boom featured iconic deals like RJR Nabisco ($25B). High D/E ratios make LBOs risky—if cash flows fall, bankruptcy follows (e.g., Toys 'R' Us). Lenders assess IRR projections (targeting 20%+) and debt/EBITDA ratios (typically <6x). The SEC scrutinizes LBO disclosures in public-to-private deals.