Leveraged Buyout - LBO

The term refers to the practice of taking on debt to buy a company. Sometimes with the same management. Sometimes with different players. In an LBO, the same basic thing happens, but in a whole bunch of cases, management is tossed out.

The company wouldn’t be quote “vulnerable” unquote to an LBO had management done a good job and kept the company trading or valued at a high multiple where it would then be almost impossible to make the risk/reward scenario work out, in taking out a lot of debt to get the company running in the right direction.

Instead, new management is brought in, usually resembling Moses, Noah, and other biblical characters in their perceived greatness.

There’s a stone tablet with a new set of commandments.

Arguments are had at the board level, and eventually, either the LBO works and the company is taken public again, or it...isn’t, and wrath is had. See: MBO, Management Buyout.