Nelcons Consulting, Inc. Mergers, Acquisitions & Investment Banking for Mid-Market Business Owners Search
Mergers, Acquisitions & Investment Banking for Mid-Market Business Owners
Fund A Leverage Buy Out
In finance, leverage (or gearing) is the use of given resources in such a way that the potential positive or negative outcome is magnified. Leverage generally refers to using borrowed funds, or debt, so as to attempt to increase the returns on equity. Funding a Leverage Buy Out (LBO) is one use of financial leverage that has received praise as a means of acquiring a company or assets. From the lenders perspective, financial leverage takes the form of a loan or other borrowings (debt), the proceeds of which are reinvested with the intent to earn a greater rate of return than the cost of interest. If the lending firm's return on assets (ROA) is higher than the interest on the loan, then its return on equity (ROE) will be higher than if it did not borrow.
On the other hand, if the firm's ROA is lower than the interest rate, then its ROE will be lower than if it did not borrow. Leverage allows greater potential return to the investor than otherwise would have been available. The potential for loss is also greater because if the investment could becomes worthless to the investor. Financial sponsors (would be owners) may seek to support Funding an LBO in order to reduce the amount they personally invest. The principals of an early-stage company may choose Funding an LBO of an existing company(ies) if the principals do not have sufficient assets to collateralize the acquisition.  Communicate your request to us by clicking on Submit Funding / Loan Request in the right margin.  We shepherd your request from inception through fulfillment.
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