LBO (Leveraged Buyout) Model

A leveraged buyout (LBO) model is a financial strategy where an investor acquires a company primarily using borrowed money (debt), with a smaller portion funded by their own equity. The goal is to improve the company's performance and sell it later at a higher value, repaying debt along the way. The key idea is that leveraging—using debt—amplifies potential returns on the investor's invested equity, but it also adds risk. The LBO model helps analyze whether this approach will generate sufficient profit after debt repayment to justify the transaction.