A leveraged buyout (LBO) is a financial transaction in which a company is acquired primarily using borrowed funds, with the acquired company’s assets often serving as collateral for the loans.
For example, a private equity firm completes a leveraged buyout of a $10 million manufacturing company using $2 million in equity and $8 million in debt, with the target company's equipment and receivables serving as collateral — betting that improved operations will generate enough cash flow to service the debt and exit profitably.
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