Leveraged Buyout

Definition

An acquisition financed primarily with borrowed money — typically 50–70% debt secured against the target company's assets and cash flows — in which a private equity firm takes a controlling stake with the intention of improving operations, growing earnings, and exiting at a higher valuation within a typical 3–7 year hold period. The "traditional LBO" strategy contrasts with buy-and-build (aggressive add-on acquisition on a platform) and growth equity (minority stakes in high-growth companies) as distinct PE playbooks.

Context

In Ep. 6, Dan Herr uses the traditional LBO as one of three reference strategies to illustrate his argument that sourcing metrics must match firm strategy. An LBO-focused firm — say, one targeting industrials — might close only two or three platform deals per year, so its sourcing success metric is fundamentally different from a buy-and-build firm chasing high add-on volume or a growth-equity firm racing to deploy capital. Dan frames the LBO-appropriate measurement: "did we get one really good deal done this year, right? And did we put enough LOIs out there in order to get that one good deal?" — outputs calibrated to deal quality and annual fund pacing, not outreach volume. (Ep. 6)

Related Terms

• Private Equity — the firm type that executes LBOs
• Platform Company — the initial LBO acquisition
• Add-on Acquisition — the building-block acquisitions a buy-and-build firm layers on an LBO platform
• Growth Equity — the minority-stake alternative playbook
• Letter of Intent — the deal instrument LBO firms track as a leading output
• Majority Recap — an LBO variant where founders retain meaningful minority equity