There are many faces of a leveraged buyout dollar. The private equity industry offers a robust landscape of strategies that provide a wide spectrum of risk-return profiles appealing to different investor requirements. Whether equity or credit-oriented, there are many options for investors to construct portfolios to meet their specific risk-and-return goals.

As we covered in the first installment of our special series, in a typical LBO the sponsor puts up the equity and borrows money from a lender to complete the purchase of a company. The total price – debt plus equity – paid for the company is its enterprise value (EV). Investors can access that equity through a variety of flavors. First, let’s look at size of the borrower. 

Upper middle market (UMM) buyouts involve EVs of $1 billion to $5 billion, often featuring well-known companies that attract attention from large institutional investors and involve highly competitive processes to acquire. Middle market (MM) LBOs range from roughly $250 million to $1 billion. These businesses are large enough to support professionalized management teams and have proven business models, but the market is less efficient than UMM.