Glossary · Valuation and finance
Leveraged buyout
Also called LBO
Definition
A leveraged buyout (LBO) is an acquisition, usually by a private equity fund, financed mainly with debt that is secured on the target's own assets and cash flow. Lenders run their own due diligence before funding, and the debt is repaid from the business's earnings over time.
Where leveraged buyout comes up
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Related terms
Management buyout A deal in which the company's own managers buy the business, usually with a private equity backer. EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Roll-up A strategy of buying many smaller companies in one sector and combining them into a larger group. Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Earn-out Part of the price that is only paid later if the business hits agreed targets after the sale. Escrow Money held back from the price by a third party, released later if no claims are made. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day.