Leveraged Buyouts In India

A Leveraged Buyout ('LBO') is a financial strategy where an investor, typically a private equity (PE) firm, acquires a company primarily using borrowed funds, with the target company's assets or cash flows used as collateral to secure or repay the debt. The key appeal of an LBO lies in minimizing equity while maximizing return on investment, taking the risk that the business performs well post-acquisition. While LBOs have been a mainstream investment tool in the West since the 1980s, their evolution in India has been cautious, creative, and constrained by legal and regulatory barriers.

In an LBO, the acquirer usually sets up a special purpose vehicle (SPV) and contributes a small portion of equity, raising the remainder through loans or debt instruments. After the acquisition, the target's revenue is used to repay this debt. This structure benefits the acquirer through 'leverage', increasing returns if the company grows while also transferring a significant portion