---
title: "What Is Leveraged Buyout? Private Equity Glossary"
description: "A leveraged buyout is the purchase of a company using a large share of borrowed money, which is repaid from the company's own cash flow."
url: https://capstreet.multisites.ai/glossary/leveraged-buyout
publisher: Capstreet
phone: +1-713-332-2700
contact: https://capstreet.multisites.ai/contact
---

Fundamentals

# Leveraged Buyout

A leveraged buyout is the purchase of a company using a large share of borrowed money, which is repaid from the company's own cash flow.

A leveraged buyout, or LBO, uses debt to pay for much of a purchase. The buyer adds its own equity to cover the rest. The company's future cash flow then repays the loans.

For example, a buyer pays $30 million for a company. It funds $12 million with bank debt and $18 million with equity. The company's earnings pay the interest and principal over time.

LBOs matter to owners because they shape what a buyer can pay. Debt lets a buyer offer more than it could with cash alone. But debt also limits how much risk the company can take, so lenders look hard at steady earnings.

Companies with predictable cash flow, like many services firms, are well suited. Ask any buyer how much debt they plan to use and what support the company will have after closing. See the [private equity](https://capstreet.multisites.ai/glossary/private-equity) definition and the guide to [selling your business to private equity](https://capstreet.multisites.ai/sell-your-business-to-private-equity).

[Read nextHow to sell your business to private equity](https://capstreet.multisites.ai/sell-your-business-to-private-equity)

## Related terms

-   [Private Equity](https://capstreet.multisites.ai/glossary/private-equity)
-   [EBITDA](https://capstreet.multisites.ai/glossary/ebitda)
-   [Management Buyout](https://capstreet.multisites.ai/glossary/management-buyout)

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