Define leveraged buyout, Financial Management

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What is an LBO?  What are the risks for the equity investors and what are the potential rewards?

A term leveraged buyout is a purchase of a publicly owned corporation through a small group of investors by using a large amount of borrowed money.  The risks for the equity investors are those which exist when a high degree of financial leverage exists.  Thus too are the rewards in which small returns become large returns due to leverage.


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