What does "LBO" stand for in corporate finance?

In corporate finance, "LBO" stands for Leveraged Buyout. A leveraged buyout is a transaction in which a company is acquired primarily using borrowed funds. In this scenario, the buyer uses a significant amount of debt to finance the purchase while using the assets of the target company itself as collateral for the loans. This strategy allows investors to amplify their returns by using debt to leverage their equity investment.

Leveraged buyouts are often employed by private equity firms seeking to take control of a company and then improve its financial performance before eventually selling it for a profit. The high level of debt involved in an LBO can lead to substantial risk, but it also presents the potential for higher rewards when the acquired company's valuation increases.

This understanding of leveraged buyouts is crucial for anyone studying corporate finance, as it reflects key principles of corporate restructuring, investment strategy, and the capital structure of businesses.