Leverage BuyoutsIn the 1980s, leveraged buyouts (LBOs) were a popular form of acquisition. Under a leveraged buyout, a buyout group (which frequently includes target management) makes an offer to buy the target firm at a premium over its current price. The buyout group finances much of the acquisition with debt capital, leading the target to become a highly leveraged private company following the acquisition.a. What types of firms would make ideal candidates for LBOs? Why?b. How might the acquirer add sufficient value to the target to justify a high buyout premium?
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