The Return of LBOs: How They Work and Why They Are Gaining Relevance Again.

The resurgence of LBOs has been accompanied by a clear acceleration in private debt: issuance for buyout transactions grew by 30% in 2024 across the US and Europe, signalling increased risk appetite in a more supportive financing environment.

So, what is an LBO?

A Leveraged Buyout (LBO) is the acquisition of a company using predominantly debt.

Rather than relying solely on equity, the investor finances a significant portion of the purchase through borrowings.

Over time, the acquired company’s own cash flows are used to help service and repay that debt.

This is where leverage comes into play.

Leverage means using debt to enhance the potential return on investment.

If the company grows, improves margins and generates consistent cash flows, returns on invested capital can be significantly amplified.

However, leverage requires discipline: the higher the debt, the greater the operational and financial demands.

So why are LBOs making a comeback?

There are three key factors:

• More capital available: Private equity continues to hold high levels of unallocated capital that need to be deployed.

  
  

• Stronger support from private debt: Private credit funds are now financing a significant share of buyouts, partially replacing traditional banks.

  
  

• Improved market conditions: With more stable financing costs and greater economic confidence, investors are once again structuring transactions with conviction.

What does this mean? More transactions, larger average deal sizes, and a buyout market that is once again in motion.

LBOs are not just a financial tool; they also reflect confidence in growth, operational execution, and capital discipline.