What Is a LBO (Leveraged Buyout)? - TheStreet Definition

Dictionary of Financial Terms

The takeover of a company using borrowed funds. Usually, the target company's assets serve as security for the loans taken out by the acquiring firm, which repays the loan out of cash flow of the acquired company. Management may use this technique to retain control by converting a company from public to private. A group of investors may also borrow funds from banks, using their own assets as collateral, to take over another firm. In almost all LBOs, public shareholders receive a premium over the current market value for their shares. When a company that's gone private in a leveraged buyout offers shares to the public again, it's called a reverse leveraged buyout.

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