Abstract

Leveraged buy-out (LBO) has become an increasingly frequent form of corporate restructuring. In general, an LBO is defined as the acquisition of a company financed largely by borrowing. These acquirers may be sponsored by buyout specialists or investment bankers that arrange such deals and usually include representation by incumbent management, although hostile LBOs are not unknown. The underlying strategy is to restructure the company, rapidly improve its performance, and increase the cash flows generated by the firm's assets in order to repay a large part of the initial debt within a reasonable period of time. It differs from a typical corporate acquisition in that the ability to support and service acquisition debt is related primarily to the assets and/or cash flow of the equity contribution of investors, including management. This research paper will provide an overview of the LBO strategy, including its advantages and disadvantages, and financing options for LBO operations.

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