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Contribute 30–50% of the capital, plus M&A and governance expertise
Target an exit within 5–7 years. Require board representation and preferential rights (drag-along, tag-along).
Acquisition · Leverage · Private Equity
LBO (leveraged buyout): financing and structuring a leveraged acquisition
By Collaboration Capital · Updated 22 October 2026
Are you planning to acquire a company or a growth platform alongside a financial investor or your own management team, but funding it 100% with equity is not realistic? Collaboration Capital structures your leveraged buyout (LBO): we size the leverage, build the capital stack (equity + senior debt + mezzanine), manage the covenants and orchestrate the exit. From EUR 5 to 200 million: company acquisitions, MBOs, buy-and-build.
3
value-creation levers: EBITDA growth, deleveraging, exit multiple
5–7
years: the typical LBO investment cycle
3.5–5.0x
typical leverage at completion (debt/EBITDA)
50+
banks and debt funds we can approach
01 · What an LBO involves
What is a leveraged buyout (LBO) and what need does it meet?
A leveraged buyout (LBO) is an acquisition in which an acquisition holding company borrows a significant share of the price from banks and debt funds, while investors contribute equity. The holding company buys the target, and the debt is gradually repaid from the cash flows the acquired business generates.
An LBO creates financial leverage: operational growth and deleveraging accrue first and foremost to the shareholders, which can multiply their return by 2 to 4x over an investment cycle.
What need does an LBO meet?
Acquire with less capital. Reduce the shareholders' initial contribution by using the borrowing capacity of the acquired group.
Fund external growth. Make several complementary acquisitions (buy-and-build) without major additional capital.
Ease business succession. Allow management to buy the business from the seller through an MBO (management buyout).
Amplify shareholder returns. Combine operational growth, deleveraging and multiple expansion.
Professionalise governance. Put in place reporting, covenants and aligned cash discipline.
The six main types of LBO
02 · The most widely used financial mechanism
LBO structure: HoldCo, OpCo, financing and value creation
An LBO rests on a simple structure: an acquisition holding company (HoldCo) borrows and acquires the target (OpCo). Three levers then create value for the shareholders.
The three value-creation levers
MOIC and IRR: the return metrics
MOIC (multiple on invested capital). The ratio between the amount recovered and the capital invested. A MOIC of 2.5x means that each euro invested returned 2.5 euros.
IRR (internal rate of return). The annualised return. A MOIC of 2.0x over 3 years produces an IRR of around 26%, whereas a MOIC of 2.0x over 7 years produces an IRR of only 11%.
03 · Capital stack and financing
The LBO capital stack: how financing instruments rank
An LBO combines several sources of financing, ranked by priority if difficulties arise. The typical structure combines 40–50% equity and 50–60% debt in various forms.
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04 · Key precautions for success
An LBO-financeable target: criteria and stress tests
A good LBO target is not just profitable — it must generate predictable, stable cash flow able to support several years of debt repayment, even in the event of a shock.
The four essential stress tests
EBITDA down 10%, 20%, 30%. The financing structure must hold even under a marked deterioration.
Average cost of debt up 100 to 300 basis points. Cash interest rises and reduces available cash.
An expected synergy delayed by 6 to 12 months. Synergies never materialise on time.
Exit at a multiple 1.0x to 2.0x below the entry multiple. The plan must work even without multiple expansion.
Covenants: the lender's guardrails. Financial covenants (leverage, interest cover, DSCR) are contractual thresholds tested every quarter or year. Breaching them is a technical default, even if the business is economically sound. You need to model how these ratios behave in every scenario.
05 · The parties to an LBO
Who is involved: investors, lenders, management and advisers
An LBO brings together around ten parties — each with its own role, risk and terms.
Shareholding
Management
Becomes a shareholder through an incentive package
Shares, share warrants (BSA), ratchets or free float. Must bear real economic risk (possible loss).
Lenders
Lending banks
Provide the senior debt (40–50% of the price)
Require a DSCR ≥ 1.2x and security over assets and key contracts. Cost: base rate + margin (3.5–4.5% all-in).
Financing
Debt funds
Provide unitranche or mezzanine
More flexible than banks, but more expensive. Accept complex structures and looser covenants.
Advisers
M&A adviser
Structures the deal, negotiates the purchase, advises on financing
Registered as an IOBSP — a French intermediary in banking transactions and payment services (as is Collaboration Capital: ORIAS no. 25000696, the French register of insurance and banking intermediaries). Produces financial models and documentation.
Verification
Lawyers, auditors, experts
Secure the SPA, financing and tax structuring
Financial, legal, tax and commercial due diligence. Essential from the binding offer stage onwards.
06 · Technical issues: tax, legal, financial
LBO structuring, ATAD interest limitation and management packages
An LBO sits at the intersection of three dimensions: legal structure, tax and shareholder governance. Each one imposes constraints.
Legal structure: HoldCo / OpCo
HoldCo (acquisition holding company): Set up as a French SAS (simplified joint-stock company) for the flexibility of its articles of association. Borrows and buys the target. Legally ring-fences the investors from the acquisition debt.
OpCo (operating target): The acquired business. Generates the EBITDA, pays dividends (subject to conditions) and may guarantee part of the debt (subject to restrictions under Article L.225-216 of the French Commercial Code).
Post-completion merger: A later merger is possible but complex (security, creditors, tax). Rarely justified.
Tax: ATAD interest limitation
The ATAD directive, as transposed into French law, caps the deductibility of net borrowing costs at the higher of:
EUR 3 million (fixed threshold), or
30% of tax EBITDA (variable threshold).
Impact: an LBO leveraged at 5.0x may find that part of its interest is not tax-deductible in the first year and is carried forward to the following year. The tax impact must always be modelled separately from the bank model.
Management packages: the 2026 French tax regime
Since 2025, the French tax regime for gains on management packages has been overhauled:
Employment income: The portion corresponding to management's normal remuneration is still taxed as salary.
Capital gains: Subject to risk and holding-period conditions (2 years minimum), a portion may fall under the capital gains regime.
Performance: A gain linked to outperformance may qualify for the capital gains regime.
Core rule: The package must first make economic sense (real investment, documented risk of loss, justified valuation). Tax treatment cannot be the reason for the instrument.
07 · Three successful examples
Ceva, Webhelp, Kiloutou: three LBO journeys
Private equity funds
1999: LBO of Sanofi/Synthélabo's animal health business
2003–2007 (IK Partners): sales up from EUR 210 million to EUR 340 million (+60%), EBITDA doubled.
Today: revenue of EUR 1.77 billion in 2024, 14 times its size at inception.
Lesson: an LBO is a tool for management independence. Value created through R&D + international acquisitions + deleveraging, not by squeezing leverage.
Webhelp
2015 (KKR): expected revenue of EUR 725 million. Management as controlling shareholder. 30,000+ employees.
2019 (GBL): Webhelp doubled in size. EV EUR 2.4 billion. Management remains committed.
2023 (Concentrix): EV ~USD 4.8 billion. Pro forma 3.0x debt/EBITDA.
Lesson: leverage and external growth can coexist when cash conversion is strong. A secondary LBO is a growth stage.
Kiloutou
2017 (HLD/PAI): construction equipment hire. EUR 606 million. Pan-European buy-and-build.
2022: EUR 1.1 billion. Size doubled in 5 years. International revenue x4.
Today: heavy capex maintained (equipment hire is asset-intensive). 6 consecutive years of growth.
Lesson: an LBO on a tangible-asset business ≠ SaaS. High, sustained capex. Buy-and-build is an operational skill.
What they teach us
✓ An LBO is not leverage arbitrage; it is a value-creation discipline.
✓ Management stability + leverage = the best long-term returns.
✓ Buy-and-build accelerates growth when integration is under control.
✓ A secondary LBO is not the final exit; it is a transition to a new cycle.
Full case studies
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08 · Preparing an LBO
From idea to completion: 6 to 8 months of LBO structuring
An LBO is prepared in three phases: pre-launch (6–12 months), signing to completion (2–4 months) and post-completion (100-day plan).
Phase 1: Pre-launch (6–12 months before the binding offer)
Validate financing capacity: 5-year model, stress-tested ratios, normalised EBITDA, free cash flow after capex and working capital.
Structure governance: share classes, draft shareholders' agreement, sized management package.
Prepare due diligence: financial (quality of earnings), tax (upcoming liabilities), legal (key contracts), commercial (market).
Engage funders: lending bank for a senior debt commitment letter, unitranche/mezzanine options explored.
Phase 2: Signing to completion (2–4 months)
SPA (share purchase agreement): price definition, conditions precedent, seller warranties, indemnities.
Finance documents: credit agreement, security (share pledges), intercreditor agreement, covenants.
Full shareholders' agreement: governance finalised, transfers, exit.
Regulatory clearances: French merger control clearance where applicable (Article L.430-2 thresholds amended in 2026).
Phase 3: 100-day plan (post-completion)
Secure: key customers (notifications), management (retention, packages), major suppliers.
Set up reporting: covenant model, operational KPIs, weekly cash.
Prioritise 5–10 initiatives: measurable, executable value-creation initiatives.
Optimise capex and working capital: check assumptions with operations.
Launch buy-and-build if that is the strategy: target pipeline, sourcing.
GO / NO-GO checklist before launching an LBO
☐ Does the target generate predictable free cash flow after capex and working capital?
☐ Can management operate without excessive reliance on the seller?
☐ Does the leverage hold with EBITDA down 20%?
☐ Does the plan work with a flat or lower exit multiple?
☐ Is interest modelled after the ATAD limitation?
☐ Have financial assistance risks been analysed (Article L.225-216)?
☐ Management package: real economic risk + documented valuation?
☐ Are SPA and financing conditions aligned (certain funds)?
☐ Does the group keep liquidity headroom for investment and the unexpected?
☐ Is there a plausible exit strategy (trade sale, secondary, IPO, continuation)?
Frequently asked questions
Leveraged buyout FAQs: the questions we are asked most
What level of leverage (debt/EBITDA) for a mid-sized LBO?
Typically between 3.5x and 5.0x. Lower if the business is cyclical or cash flows are hard to predict; higher if cash flows are stable (infrastructure, long-term contracts). Leverage of 5.0x at completion is only viable if lenders accept it, i.e. if the DSCR stays ≥ 1.20x even under stress testing.
What is a covenant and why does it matter so much?
A covenant is a contractual threshold the group must meet every quarter (e.g. leverage ≤ 4.0x, DSCR ≥ 1.2x). A breach is a technical default, even if the business is economically sound. Covenants vary with the type of debt (senior: stricter; mezzanine: more flexible).
Can an LBO be done without a parent company guarantee?
Yes, if the project's cash flows comfortably cover the debt. Senior lenders accept no guarantee if the DSCR is ≥ 1.25x and security is taken over the target's assets. Mezzanine lenders often ask for a light guarantee as a precaution.
How long does an LBO take from start to completion?
Between 12 and 24 months in total. Pre-launch: 6–12 months. Signing to completion: 2–4 months. The factor that causes the most delay is a lack of quality documentation at launch (key contracts not signed, incomplete due diligence).
What is buy-and-build and what does it add to an LBO?
A strategy in which the LBO platform acquires several complementary targets to accelerate growth. Benefits: synergies, diversification, denser geographic coverage. Risks: integration complexity, slower deleveraging, operational execution.
What are the exit options for an LBO?
Four main ones: (1) trade sale (sale to a strategic industrial buyer), (2) sponsor-to-sponsor (sale to another fund), (3) IPO (stock market flotation), (4) refinancing/continuation (same or new long-term sponsor).
Can an LBO fail, and how can it be remedied?
Yes, if EBITDA falls, interest rates rise or a synergy fails to materialise. Options: waiver (temporary forbearance against a fee), covenant reset (renegotiation), equity cure (capital injection), amendment (debt restructuring). Acting early is better than managing a crisis.
What is the average return on a successful LBO?
Between 20% and 30% annualised IRR for a mid-market LBO over 5–7 years (base case). It depends heavily on time (MOIC of 2.0x in 3 years = 26% IRR; MOIC of 2.0x in 7 years = 11% IRR). No guarantee.
Do I need an exclusive mandate with Collaboration Capital to structure the LBO?
No. Collaboration Capital does not require exclusivity. You remain free to consult other advisers and to withdraw your file at any time. The firm is registered as an IOBSP — intermediary in banking transactions and payment services — with ORIAS, the French register of insurance and banking intermediaries (ORIAS no. 25000696).
Get your LBO project assessed
A first 45-minute call with a partner to test your financing capacity, calibrate management's contribution and the sustainable debt level, compare structures with and without a sponsor, and map the funders you can approach — with no commitment.
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IOBSP broker registered with ORIAS under no. 25000696