Leveraged Buyout (LBO)

Definition - What does Leveraged Buyout (LBO) mean?

A leveraged buyout (LBO) is a type of transaction that allows the use of the balance sheet as the primary conduit to purchase a business. If the business generates significant free cash flow, has sufficient net tangible assets, and a low level of debt, then a buyer can borrow against the balance sheet and use the debt proceeds to acquire the business.

Divestopedia explains Leveraged Buyout (LBO)

LBOs are closely related to management buyouts since management often borrows against the business' assets and free cash flow to purchase the company. Private equity firms also use LBOs often to generate a monetization event for their equity. Once the company in which they have invested is flowing cash and has paid down some debt, additional debt is put on and the cash is paid out as dividend or return of capital to the private equity firm and owner investors.

Connect with us

Divestopedia on Linkedin
Divestopedia on Linkedin
Tweat cdn.divestopedia.com
"Divestopedia" on Twitter

Sign up for Divestopedia's Free Newsletter!

Email Newsletter

Join thousands of others with our weekly newsletter


  • Equicapita: Equicapita
    Equicapita's model is to acquire established, private small and medium sized enterprises (“SMEs”) located primarily in Western Canada.
  • Evolution Capital: Evolution Capital
    Leaders in growing small business.