Ultimately
the debt is paid with money generated from the acquired company’s operations or by sales of its
assets. The acquired company, in effect, pays for its own acquisition. Management of the LBO is
then under tremendous pressure to keep the highly leveraged company profitable. Unfortunately,
the huge amount of debt on the acquired company’s books may actually cause its eventual decline
by focusing management’s attention on short-term matters. For example, one year after the
buyout, the cash flow of eight of the largest LBOs made during 2006–2007 was barely enough
to cover interest payments