A leveraged buyout (“LBO”) is a strategy where someone acquires an existing company using a significant amount of borrowed funds. Typically, the assets of the company being purchased are used as collateral for the borrowed funds. This allows someone to acquire a company without having to outlay a lot of personal or business capital. Then, the purchased company’s cash flow is typically used to repay the debt.
It may not seem natural to include LBO talk in this Startup Lawyer Blog, but I believe every entrepreneur should be aware of such a strategy. LBO transactions can be a way to grow your companies–or sell them.