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Leveraged Buyout

LBO

Buying a company using a large amount of borrowed money, repaid from its own cash flows.

Detailed explanation

Private equity firms put in a slice of equity, borrow the rest against the target, pay down debt over a few years and sell. Returns are measured by IRR and MOIC.

Why it matters

LBO modelling is a core skill for private equity and leveraged-finance roles.

Key points

Needs stable cash flows to service debt.
Debt paydown boosts equity returns.
Exit via sale or IPO.

Related terms

Private Equity IRR MOIC Leverage

More in Investment Banking

Investment Banking Mergers & Acquisitions Equity Capital Markets Debt Capital Markets Pitch Book Discounted Cash Flow

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.