LBO_ Lavereged buyOut_Eng

Description
What is LBO?
LBO stands for Leveraged Buyout, a term that refers to an acquisition of a company made with a significant amount of third-party capital. In such cases, after the purchase is finalized, its assets can be used as collateral for loans made earlier.
Also called a Highly Leveraged Transaction, LBO transactions will only happen if the company's buyers or sponsors demonstrate a potential to sustain the target company's growth. So we have the actual acquisition and the transformation of the two into one.
The leveraged buyout transactions take place at the time of the acquisition of the company, considering that another takes over the controlling stake and makes the debts to be paid off. It is a strategy considered at the time of the purchase, by sponsors or partners of the company to be sold.
How does a Leveraged Buyout work?
The LBO is a strategy commonly used to create a company with low capital, which aims to buy another company with high debt or with cost greater than the sponsor's money.
Then you take out leveraged financing - and after the acquisition of the company for sale, the two merge.
In this way the sponsor gets a leveraged financing (loan). Then the shares are acquired by the buyers for the financed capital, but the assets are used as a parallel object for the purchase price. Therefore, aiming for the sponsor to repay the loan. The most commonly used ratios for the amount/price of the company is 30% equity/70% debt.
So at the time of purchase, the "company" created is in debt because of the investment required in this purchase. Therefore the sold company will also assume the debt.
So you could say that leveraged buyout is a loan, i.e. you will buy the shares with borrowed capital. The company that will practice leverage will always aim to be able to expand its capital during the years, to pay back the loan little by little.