Which of the following best describes a leveraged buyout fund’s acquisitions?Investing in early stage businessesInvesting in mid-sized businessesInvesting in mature businessesInvesting in foreign businesses
Question
Which of the following best describes a leveraged buyout fund’s acquisitions?Investing in early stage businessesInvesting in mid-sized businessesInvesting in mature businessesInvesting in foreign businesses
Solution
A leveraged buyout fund typically involves investing in mature businesses. This is because a leveraged buyout (LBO) is a strategy involving the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans. This strategy is usually employed when the acquiring company believes that the target company's assets are undervalued. Mature businesses are often targets for LBOs because they have steady cash flows which can be used to pay off the debt.
Similar Questions
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