Leveraged buyout


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Leveraged buyout (LBO)

A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.

Leveraged Buyout

The acquisition of a publicly-traded company, often by a group of private investors, that is financed with debt. Often, the acquirer in a LBO issues junk bonds in order to raise the capital necessary for the acquisition. A leveraged buyout allows a company to be taken over with little capital, but it can be a high risk endeavor.

leveraged buyout (LBO)

The use of a target company's asset value to finance most or all of the debt incurred in acquiring the company. This strategy enables a takeover using little capital; however, it can result in considerably more risk to owners and creditors. See also hostile leveraged buyout, reverse leveraged buyout.
Case Study Leveraged buyouts (LBOs) became popular in the 1980s when firms such as Beatrice Companies, Swift, ARA Services, Levi Strauss, Jack Eckerd, and Denny's were acquired and then were taken private. With an LBO, a firm's management often borrows funds using the firm's assets as collateral. The borrowed money is used to purchase all the firm's outstanding stock. As a result, a small group of individuals is able to take control of the firm without using any or much of the group members' own money. Following the buyout the new owners frequently attempt to cut costs and sell assets in order to make the increased debt more manageable. Because the group initiating the LBO must pay a premium for the stock over the market price, an LBO nearly always benefits the stockholders of the firm to be acquired. However, investors holding bonds of the acquired company are likely to see their relative position deteriorate because of the increased debt taken on by the company. For example, the leveraged buyout of R. H. Macy & Co. produced a $16 jump in the price of its common stock at the same time the price of its debt securities fell. Most bondholders have no recourse to the increased risks they face because of the greater resultant debt.

Leveraged buyout.

leveraged buyout (LBO) occurs when a group of investors using primarily borrowed money, often raised with high yield bonds or other types of debt, takes control of a company by acquiring a majority interest in its outstanding stock.

Leveraged buyouts, which are often, but not always, hostile takeovers, may be engineered by an outside corporation, a private equity firm, or an internal management team.

References in periodicals archive ?
This unusual action by the Tax Court highlights the opportunity for filing refund claims for taxpayers that did not take deductions for leveraged buyout fees properly allocable to indebtedness to be amortized over the term of such indebtedness.
Another adverse change to leveraged buyout planners in TRA '86 was the new procedure for allocating the purchase price to the basis of acquired assets.
WSI intended to finance its leveraged buyout by selling or pledging substantially all of Wieboldt's assets, particularly its real property, which was already serving as collateral for obligations upon which Wieboldt was at least partially in default at the time.
is a leading private investment firm focused on leveraged buyouts, equity, debt, and other investments in market-leading companies that can benefit from its in-house operating professionals and experience.
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The first, the firm effects hypotheses, states that firm-specific characteristics, such as management or operating inefficiency, are the primary motivation for taking a firm through a leveraged buyout.
a private investment firm specializing in leveraged buyouts and investments in market-leading companies, today announced that one of its affiliated portfolio companies, Dura-Line Corporation ("Dura-Line") has been sold to Audax Group, a leading private investment firm.
two of the nation's largest leveraged buyout funds, are weighing a bid for Polygram NV, the giant music company, several people close to the discussions said Tuesday.
Lewis' leveraged buyout of TLC Beatrice International in 1987.
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Levy, also from South Africa, is a leveraged buyout specialist who acquires and manages operating companies for a number of international partnerships.