The use of a target company's asset value to finance the debt incurred in acquiring the company.
The acquisition of a corporation, using mostly borrowed funds which are secured by the assets of the corporation being acquired.
A transaction by a small group of individuals that turns a public company into a private company. An LBO involves using a significant amount of debt to pay for the purchase. The interest payments on the debt are paid out of the cash flows of the acquired company. Management also may use this technique, which then is called a management buyout. One of the largest LBOs was the LBO of RJR Nabisco in 1989 for $30 billion, which was financed by junk bond sales. See also junk bond and management buyout.