What is one of the key roles of an investment bank in an LBO?

One of the key roles of an investment bank in a leveraged buyout (LBO) is to help arrange and underwrite the necessary debt. In an LBO, a significant portion of the acquisition financing comes from debt raised against the target company’s assets and future cash flows. Investment banks play a crucial role by identifying potential lenders, structuring the debt, and negotiating terms to ensure that the financing is both adequate and favorable.

By underwriting the debt, investment banks take on the responsibility of assessing the risk and viability of the transaction, which provides assurance to lenders that the deal is sound. This role is vital because it not only facilitates the immediate transaction but also helps to secure the financial backing that enables the leveraged buyout to happen, thereby maximizing the acquirer's ability to invest in the target company and generate returns on the investment.

In contrast, managing the target company, overseeing the operations of the acquirer, and limiting the involvement of equity investors are not primary responsibilities of investment banks in the LBO context. These functions are typically handled by the private equity firms or management teams that acquire the companies.