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A leveraged buyout (LBO) is the purchase of one company by another, generally a [[Carried Interest Debate| private equity firm]] , using substantial amounts of borrowed capital, typically in the form of bonds or loans. In short, an LBO is an acquisition financed primarily by debt. The principle idea behind LBOs is to employ high leverage (the ratio of debt to equity) to magnify returns to investors with the assets and future cash flows of the acquired company used as collateral against the acquirer's loans.