Financial Blog Corliss Group| The Motley Fool: Every Sunday, Useful Tips on Investing
- 10 years ago
Q: What’s a leveraged buyout?
A: A leveraged buyout (LBO) is when a company is bought out by another entity (or entities), using a lot of debt.
Private-equity investors are typically involved, borrowing gobs of money without using much of their own, and often using the acquiree’s assets as collateral.
The acquired company is generally taken private (i.e., it will not trade publicly on the stock market), only to go public again after some changes have been made (such as layoffs, the selling of assets, or dividend increases or decreases).
While some LBOs are executed by members of management, others are hostile, executed by outsiders and not welcomed by their targets.
Many LBOs don’t end well for the company or its shareholders (there are substantial interest payments due, after all), though the acquirers often do well...
A: A leveraged buyout (LBO) is when a company is bought out by another entity (or entities), using a lot of debt.
Private-equity investors are typically involved, borrowing gobs of money without using much of their own, and often using the acquiree’s assets as collateral.
The acquired company is generally taken private (i.e., it will not trade publicly on the stock market), only to go public again after some changes have been made (such as layoffs, the selling of assets, or dividend increases or decreases).
While some LBOs are executed by members of management, others are hostile, executed by outsiders and not welcomed by their targets.
Many LBOs don’t end well for the company or its shareholders (there are substantial interest payments due, after all), though the acquirers often do well...