what is a leveraged buyout 
a leveraged buyout lbo is the acquisition of one company by another using a significant amount of borrowed money to meet the cost of acquisition the borrowed money can be in the form of bonds or loans the assets of the company being acquired are often used as collateral for the loans along with the assets of the acquiring company investopedia matthew collinsunderstanding leveraged buyouts lbos in an lbo the ratio of debt to equity used for the takeover will be as high as possible the exact amount of debt that will be used depends on the market lending conditions investor appetite and the amount of cash flow that the company is expected to generate after takeover 1 the bonds issued in the buyout usually aren t investment grade and are referred to as junk bonds because of this high debt equity ratio the purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital returns are generated in an lbo in three ways private equity investment groups that carry out lbos have garnered a reputation for being ruthless and predatory because of their need to rapidly increase margins to do this many investors embark on strict cost cutting measures that can include making staff redundant to make their returns the private equity investors have to sell or realize their investment over a relatively short timeframe typically lbo investments are held for between 5 years and 7 years although there can be shorter or longer holding periods there are several ways the investment can be realized usually lbos are undertaken because a private equity investment group have identified the company as a good target a good target is one that is able to generate annualized returns in excess of 20 and so the company must generate cash to pay down debt deleverage and should have opportunities for margin and multiple improvements examples of leveraged buyoutsone of the largest lbos on record was the acquisition of hospital corp of america hca by kohlberg kravis roberts co kkr bain co and merrill lynch in 2006 the three companies valued hca at around 33 billion 2the number of such large acquisitions declined following the 2008 financial crisis but large scale lbos began to rise again as the covid 19 pandemic waned a group of financiers led by blackstone group announced a leveraged buyout of medline that valued the medical equipment manufacturer at 34 billion in 2021 34vista equity partners and elliott investment management entered into the first significant leveraged buyout of 2022 when they acquired citrix systems inc a software manufacturer for 13 billion in january 5yahoo finance reported in december 2023 that leveraged loans are on track for another boom year in 2024 6