: The future cash flows of the acquired business are used to pay down the interest and principal of the debt over time.
: Often called "junk bonds," these are unsecured and carry higher interest rates due to increased risk. leveraged buyout
: Ideal candidates are mature, stable businesses in non-cyclical industries with strong, predictable cash flows and low capital expenditure (CAPEX) requirements. Common Financing Instruments : The future cash flows of the acquired
: Secured by assets and paid first; carries the lowest interest rates. Common Financing Instruments : Secured by assets and
The "capital stack" in an LBO is often layered by risk and repayment priority:
LBOs are defined by their unique capital structure and the use of the target company's own assets to facilitate the purchase.
The ultimate goal of an LBO is to realize high returns—often targeting an of 20% to 30%. Understanding the Leveraged Buyout Model - HBS Online