In finance, what is Leveraged buyout?

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This refers to a financial transaction wherein a company is acquired by another, predominantly through the use of debt. Leveraged buyouts, by allowing companies that lack sufficient investment capital to use borrowed capital to acquire other large businesses, are said to facilitate large financial transactions. Many leveraged buyouts, however, fail eventually when the cash earnings from the acquired business fail to justify the debt payments incurred over a number of consecutive years. Since the lender is subject to substantial financial risk, it is not unusual to see the acquired business being pledged as collateral that the lender can seize in case of a default.


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