M&A: Buyouts and Leveraged Deals

Buyouts occur when a company or division is bought by a small group of investors. Buyouts by the company's management team are known as management buyouts (MBOs), while those financed by debt are referred to as leveraged buyouts (LBOs). Here we focus on LBOs, the motives behind them, and their valuation. We also examine the effect of leverage on the cost of equity and cost of debt.