Leveraged Buy-out (LBO)

A leveraged buy-out (LBO) is the acquisition of a company in which the purchase price is financed predominantly through debt. The leverage arises because only a comparatively small equity portion is used, while the debt raised is later serviced from the ongoing cash flow of the acquired company.

LBOs are typically used by financial investors such as private equity firms. The viability of the structure depends largely on a stable, predictable cash flow and a solid EBITDA. The level of debt is often measured as a multiple of EBITDA and assessed against market multiples. Part of the financing may be covered by a vendor loan.

In the German Mittelstand, the LBO plays a role particularly in succession solutions and growth financing. In our transaction structuring, we ensure that the debt level does not overstretch the company's operational headroom.