Series 79 practice questionmediumLeveraged Buyouts
Which of the following is typically the largest source of funds in a leveraged buyout transaction?
- ADebt financing provided by banks or institutional lenders✓ Correct answer
- BEquity rolled over by the existing management team
- CSeller financing from the target company
- DRetained earnings of the target company
Explanation
Why A — Debt financing provided by banks or institutional lenders
Debt financing, often comprising 60% or more of the total transaction value, is usually the largest funding source in an LBO. Equity rollover and seller financing can be important but are rarely the majority. Retained earnings are not a primary LBO funding source.
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