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What is a leveraged buyout (LBO)?

A leveraged buyout (LBO) is the acquisition of one company by another using a significant amount of borrowed money to meet the cost of acquisition. The borrowed money can be in the form of bonds or loans. The assets of the company being acquired are often used as collateral for the loans along with the assets of the acquiring company.

What is an owner buyout (LBO)?

As with any LBO, the collateral of the company is used to pay for the transaction. An Owner Buyout is a less common form of the LBO, whereby the owner manages to keep control of a minority stake in the business after the transaction has closed.

Who is a buyer in a LBO?

The buyer can be the current management, the employees, or a private equity firm. It's important to examine the scenarios that drive LBOs to understand their possible effects. Here, we look at four examples: the repackaging plan, the split-up, the portfolio plan, and the savior plan.

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