What does LBO stand for in corporate finance?

Leveraged Buyout refers to a financial transaction in which a company is purchased using a significant amount of borrowed money to meet the cost of acquisition. In an LBO, the buyer typically uses the assets of the company being acquired as collateral for the loans that finance the purchase, allowing them to minimize the upfront capital required and maximize potential returns on their investment.

This approach can provide an effective means of acquiring a company, especially if the acquirer believes they can improve the company’s operations or financial performance, which would increase the value of the business post-acquisition. Leveraged buyouts are commonly used in private equity transactions, where the goal is to enhance the company’s value over a period before selling it at a profit.

The other options do not accurately reflect standard terms or practices in corporate finance related to acquisitions and financing.