In finance, what is Leveraged buyout?

  • This refers to a financial transaction wherein a company is acquired by another, predominantly through the use of debt.
  • Leveraged buyouts, by allowing companies that lack sufficient investment capital to use borrowed capital to acquire other large businesses, are said to facilitate large financial transactions.
  • Many leveraged buyouts, however, fail eventually when the cash earnings from the acquired business fail to justify the debt payments incurred over a number of consecutive years.
  • Since the lender is subject to substantial financial risk, it is not unusual to see the acquired business being pledged as collateral that the lender can seize in case of a default.


Leave a Reply