Levereged Buyout

More and more companies are being taken private by means of levereged buyout. Some of the largest buyout in history are $31.8B for the Texas Power Company by Private Equity firms and Texas Pacific Group, The 21B buyout of HCA Inc and $46B buyout of Equity Office by Blackstone group.

What is Levereged Buyout?

The financial sponsor (private equity groups such as the blackstone group, the Carlyle Group, Warburg Pincus) uses the borrowed money to gain control of the target company. They use the assets of the companies as collateral for the loans. According to an article in Wikipedia, the debt/equity ratio is 70% debt and 30% equity. The equity component is provided by the private equity capital. It is utlimately the respobsibility of the acquired company to pay off the debt.