leverage buyout (LBO)

A leverage buyout (LBO) is a financial transaction where an investor or a company acquires another company primarily using borrowed money (debt). The purchase is funded with a small amount of the buyer’s own equity and a large portion of loans, which are repaid using the acquired company’s cash flow. The goal is to improve the company's performance and eventually sell it for a profit, repaying the debt along the way. LBOs are common in private equity, allowing investors to maximize returns by leveraging borrowed funds to acquire and grow companies efficiently.