According to Investopedia a leveraged buyout or LBO is an acquisition of a different company using a specific amount of borrowed money to meet the cost of acquisition. Apparently, the assets of this company being acquired are usually used as collateral for loans and assets of the acquiring company. I researched that in 2006 one of the largest leveraged buyouts was the acquisition of Hospital Corporation of America or HCA by Kohlberg Kravis Roberts &Co., and Merrill Lynch. I also found that an LBO most of the time has a ratio of 90% debt to a 10% equity.

In an article published by The Street most corporate purchases consists of significant debt. This is correct even if the purchaser has the enough money to make the purchase. When using debt for a corporate acquisition has tax advantages and gives access to someone to is willing to buy a possible write off bad loans if the acquired business does a bad job. Even so, an LBO is quite different from an average purchase. One way is that it must have a higher debt-to-equity ratio than the other companies’ acquisitions. Another way is that it secures the debt with the company.

I found this topic to be very surprising and interesting involving how it gives owners of the companies a way to try and improve their business and make more profit. However, if that deal falls apart and the company does not make any profit, the acquired business will be in awfully bad debt and will be responsible for the payments. It seems like a dangerous thing for the other company.