What outcome does an LBO often depend upon?

An LBO, or Leveraged Buyout, primarily depends on borrowed funds that are secured by the assets of the targeted company. In a leveraged buyout, the acquiring party utilizes significant amounts of debt to finance the purchase of a company, which allows them to acquire it without committing substantial amounts of their own capital. This structure relies on the company's assets as collateral for the loans, and the cash flows generated by the company are expected to service this debt over time.

The success of an LBO is often contingent on the profitability and stability of the acquired company, which must be sufficient to cover the debt obligations. If the acquired company can generate strong cash flows, it can effectively pay down the debt incurred during the buyout, enabling a successful exit strategy for the investors, usually through a sale or public offering later on.

While market trends and shareholder decisions can influence an acquisition’s context, the core mechanism of an LBO revolves around the financial leverage provided by borrowed funds against the company’s assets. This fundamental reliance on debt distinguishes LBOs from other transactional structures and illustrates why option B is the critical determinant of outcomes in LBO transactions.