#1 is not unique to corporate acquisitions. Think of it like a real estate mortgage. You can buy an apartment complex with 25% down and finance the other 75%

#1 is not unique to corporate acquisitions. Think of it like a real estate mortgage. You can buy an apartment complex with 25% down and finance the other 75% as long as the building produces 1.25x the debt payment in free cashflow. The key is having enough cushion in the cahsflow to account for value-add "repairs" like remodeling stores or launching a new product to maintain/grow cashflow. If an LBO is done properly, like Michael's, it's a win for everyone. Old shareholders don't lose their shirt due to an unsustainable valuation tanking, lenders get paid back, and new shareholders aren't tied to the same old valuation because they financed the acquisition and only invested a percentage of the sale price. The trick is identifying which poorly-performing companies are just overvalued and can be transformed into strong performers at a different price-point, and which companies are just headed for the gutters.