Word of the Day: Leveraged Buyout A #leveragedbuyout (#LBO) is a #purchasingarrangement in which the acquirer takes out a loan that is structured so that the buyout targets assets are used as collateral to obtain the loan. In finance, to leverage is to be willing to assume debt in order to create a larger return on an investment (#ROI). In a leveraged buyout, the ratio of debt to equity varies, but the debt can range from 100% of the purchase price to, more typically, 40% to 60% of the purchase price. Borrowing against the buyout targets assets allows an acquirer to make a large purchase without having to put a lot of money up front. Because leveraged buyouts have been used in #hostiletakeovers, this type of deal structure has become associated with corporate raiding and has picked up a negative connotation. Banks like LBO deals because the #interestrates are much higher than in traditional corporate lending. But the deals also carry significant risk when, for example, the acquired companys assets have been over-leveraged due to poor planning or economic conditions decline and the acquired companys assets can no longer cover the loan.
Posted on: Tue, 06 May 2014 17:16:42 +0000
Trending Topics
Recently Viewed Topics
© 2015