Leveraged Buy-Out (LBO)

A Leveraged Buy-Out (LBO) is a company acquisition predominantly financed with debt, where the target's cash flows service the acquisition debt. The typical structure comprises an acquisition holding company (NewCo), senior debt, potentially a mezzanine tranche, and equity contributed by the fund and management. Investor returns are amplified by financial leverage — the objective is to maximise IRR on invested equity over a 3–7 year hold period. Target valuation directly determines acceptable leverage levels and potential returns.

‍

Example: a fund acquires a Swiss SME valued at CHF 40.0 million (8x EBITDA of CHF 5.0 million), financed with CHF 24.0 million senior debt (60%) and CHF 16.0 million equity (40%). Over 5 years, EBITDA grows to CHF 7.5 million. Exit at 8x: enterprise value CHF 60.0 million, residual debt CHF 8.0 million, equity proceeds CHF 52.0 million — generating an equity IRR of approximately 27%, amplified by the initial financial leverage.

‍

Hectelion values LBO targets, structures acquisition financing and advises on management packages in leveraged acquisition transactions across France and Switzerland.