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← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questioneasyLeveraged Buyouts

In a leveraged buyout (LBO), the acquisition is primarily financed with:

  1. AA significant amount of debt, using the target's assets and cash flows as collateral✓ Correct answer
  2. BCash on hand from the acquirer's balance sheet
  3. CNew equity issued by the acquirer to public investors
  4. DGovernment subsidies and grants
Explanation

Why A — A significant amount of debt, using the target's assets and cash flows as collateral

A leveraged buyout is an acquisition in which a significant portion of the purchase price is financed with debt, typically 60-80% of the total consideration. The debt is secured by the target company's assets and is expected to be serviced and repaid from the target's future cash flows. LBOs are commonly used by private equity firms, which contribute equity for the remaining portion of the purchase price.

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