Valuation and investment
LBO (leveraged buyout)
Buying a company mostly with borrowed money.
Facts checked against sources onWhat does LBO (leveraged buyout) mean?
In a leveraged buyout, a buyer, usually a private equity fund, acquires a company using a large amount of debt, which is then repaid from the company's own cash flows. The debt raises the return on the fund's equity if things go well, and raises the risk if they do not.
Where does it come up in case interview prep?
- Mergers, acquisitions, and due diligenceLesson
- Private equity and venture capital: investor style casesLesson in The same acumen in other roles
- Media players, trends, and how to crack the casesLesson in Media, streaming, gaming, and advertising
- How private equity and venture capital funds workLesson in Private equity and venture capital
- LBO returns and fund economicsLesson in Private equity and venture capital
- Games and betting players, trends 2024 to 2026, and how to crack the casesLesson in Video games and betting: publishers, platforms, sportsbooks and lotteries
Related terms
- MOIC (multiple on invested capital)How many times the money invested comes back.
- IRR (internal rate of return)The discount rate at which NPV is exactly zero.
- Due diligenceCareful checking of a target before you buy it.
- Return on investment (ROI)The gain from an investment relative to its cost.
- Payback periodHow long until an investment earns back its cost.
- Time value of moneyMoney today is worth more than the same money later.
- Discount rate and hurdle rateThe rate used to turn future cash into today's value.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
Learn it in context
See LBO (leveraged buyout) at work in a lesson from Mergers, acquisitions, and due diligence, with checks as you go.
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