Going Private and LBOs If the existing management buys the firm from the shareholders and takes it private If it is financed with a lot of debt,it is a leveraged buyout (LBO). The extra debt provides a tax deduction for the new owners,while at the same time turning the pervious managers into owners. This reduces the agency costs of equity slide 2slide 2 Going Private and Going Private and LBOs ƒ If the existing management buys the firm from the shareholders and takes it private. ƒ If it is financed with a lot of debt, it is a leveraged buyout (LBO). ƒ The extra debt provides a tax deduction for the new owners, while at the same time turning the pervious managers into owners. ƒ This reduces the agency costs of equity