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Private Equity and Venture Capital in Europe by Stefano Caselli

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Chapter 16. Financing buyouts

16.1. General Overview of Buyouts

A buyout is a structured financial operation that, through merger, division, or acquisition of control participation, allows the transfer of the property from the old shareholders to a new entrepreneur with economic and technical support of a financial intermediary (usually a private equity fund). In a leveraged buyout (LBO) a major part of the capital is supplied by debt securities subscribed by a pool of banks and financial intermediaries. It is possible to define leveraged acquisitions as a particular type of M&A activity that leaves the acquired firm with a debt ratio higher than before the acquisition.

LBOs have a special structure, which consists of a holding company that ...

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