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Leveraged Buyouts: A Practical Introductory Guide to LBOs by David Pilger

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Chapter 2: Leveraged Buyouts: The Purpose

Why do a leveraged buyout? Why would anyone go through the trouble? The answer is quite simple: money. The goal of any LBO transaction is to achieve higher returns on the initial equity investment of the investor. Leveraged buyouts are designed to enhance the returns attainable by equity investors; they do so by decreasing the size of the initial equity investment.

“The goal of any LBO transaction is to achieve higher returns on the initial equity investment of the investor.”

For example, a company is purchased for $100 million with 100% equity and the company is streamlined over the course of a year and later sold for $110 million. The investor just made a 10% return on investment. (Let’s ignore ...

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