Leveraged Buyout (LBO)

An acquisition of a company or realisation of a controlling interest using mostly debt and a small amount of equity. The debt is secured by the assets of the business. In LBO, the acquiring company uses its own assets as security for the loans assuming that the future cash flows will cover the loan payments. Usually the acquiring company or individuals use their own assets. A buy out occurs when a public company is taken off the stock market and becomes a private company, a leveraged buy out implies that a large amount of debt has to be taken on (borrowed funds) by the company in order to raise the funds needed to buy the equity from the shareholders.