Warning
Info
Warning
Info
Simple English definitions for legal terms
leveraged buyout
Read a random definition: profiling
A quick definition of leveraged buyout:
A leveraged buyout is when a company is bought by using a lot of borrowed money. This means that the buyer doesn't have to use much of their own money to buy the company. Instead, they use loans from banks or other lenders to pay for the purchase. The hope is that the company will make enough money to pay back the loans and make a profit for the buyer.
A more thorough explanation:
Definition: A leveraged buyout is a type of acquisition where a company is purchased using a significant amount of borrowed money, often with the assets of the company being used as collateral for the loan. The goal of a leveraged buyout is to use the acquired company's assets to generate enough cash flow to pay off the debt used to purchase it.
Example: A private equity firm wants to acquire a company for $100 million. Instead of using their own money, they borrow $80 million from a bank and use the assets of the company they are acquiring as collateral for the loan. The private equity firm then uses $20 million of their own money to complete the purchase. The acquired company is then expected to generate enough cash flow to pay off the $80 million loan.
Explanation: The example illustrates how a leveraged buyout works. The acquiring company uses borrowed money to purchase the target company, with the assets of the target company being used as collateral for the loan. The goal is to use the cash flow generated by the target company to pay off the debt used to purchase it. This type of acquisition can be risky, as the acquired company must generate enough cash flow to pay off the debt, and if it fails to do so, the acquiring company may face financial difficulties.