Leveraged buyout

(redirected from Leveraged buyouts)
Also found in: Dictionary, Thesaurus, Encyclopedia.
Related to Leveraged buyouts: Management buyouts

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 ?
For the many companies whose leveraged buyouts have failed, however, the negative repercussions have been far-reaching.
1987: Reginald Lewis makes history by completing a $985 million leveraged buyout of Beatrice International Foods.
That was the case in one of the two high-profile leveraged buyouts that occurred in 1986, when Jack Eckerd Corp.
Thus, senior and mezzanine financing sources began to sharply curtail their new business activities with regard to leveraged buyouts and real estate, and the aggressive financing available earlier in the decade all but disappeared.
This study estimates taxes paid by 23 of the largest corporate leveraged buyouts in the years 1988, 1989 and 1990.
It is clear that leveraged buyouts are susceptible to attack under the Bankruptcy Code as fraudulent conveyances.
Second, fiduciary protection for bondholders in leveraged buyouts would likely increase litigation costs, as bondholders and stockholders dispute the distribution of gains in these transactions.
Kaplan [7] also finds that the tax benefits are a large source of wealth in leveraged buyouts.
Revco filed under Chapter 11 in mid-1988, less than two years after the leveraged buyout.
said, "We would like to thank the Dura-Line management team for the great contribution that they have made to the success of our leveraged buyout funds and wish them every success with Audax Group.
During this period, when many companies were executing leveraged buyouts, acquisitions and rollups, banks were delivering highly leveraged cash flow loans, which were based on a multiple of the borrower's trailing earnings.
The company was acquired by a consortium led by company management and Leonard Green Partners, a Los Angeles-based merchant banking firm specializing in leveraged buyouts.