Financing an m&a transaction introduction


Highly Leveraged Transactions



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FINANCING AN M&A TRANSACTION
Highly Leveraged Transactions
The leveraged buyout, or LBO, is a common example of a highly leveraged transaction in which a large portion of the purchase price is financed with debt. LBO targets can be private or public firms, and can involve an entire company or a division of a company. A n LBO investor is often called a financial buyer or sponsor and may be inclined to use a large amount of debt to finance as much of the target’s purchase price as possible. Financial buyers tend to concentrate on actions that enhance the target firm’s ability to generate cash to satisfy their substantial debt service requirements. High leverage makes the potential returns to equity much more attractive than less-leveraged transactions
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