In the context of acquisitions, what does leveraging typically refer to?

Leveraging in the context of acquisitions primarily refers to the strategy of increasing debt to fund the purchase of another company. This approach is often utilized to maximize the financial resources available for acquiring a target, as it allows the acquiring company to use borrowed funds instead of solely relying on existing cash reserves or equity. By taking on debt, companies can maintain their liquidity and potentially pursue larger acquisitions than what might be feasible through cash on hand alone.

This practice aligns with a common financial strategy known as leveraged buyouts (LBOs), where a significant portion of the purchase price is financed through debt. The idea is that the future cash flows generated by the acquired entity will be sufficient to service this debt, ultimately creating a situation where the return on investment is amplified.

In contrast, while finding new customers, reducing operational costs, and enhancing product features can be essential strategic goals during or after an acquisition, they do not accurately define the term "leveraging" within this context. These elements are typically part of integration and growth strategies following an acquisition rather than the financing method used to complete the acquisition itself.