Reply #5: The term "LBO" may have started in the 1980's, but that kind of transaction began well before then.

[No Elephants]

http://en.wikipedia.org/wiki/Leveraged_buyout and http://en.wikipedia.org/wiki/Early_history_of_private_equity

LBO's were very prevalent in the "go go market" of the Nineteen Sixties and Seventies. In fact, LBOs are probably what made it a "go go market."

Investors would buy a company essentially by using the assets of the company they were buying as collateral for the loans they were taking in order to buy the company. IOW, smoke and mirrors.

So, if the company did well, great. Everyone made money, the people who sold out, the purchasers and the employees.

If operating the company did not yield enough to pay off the debt and cover operating expenses, plus turn a profit, the company simply declared bankruptcy. The purchasers were not hurt. Neither were the original investors, who had been bought out in the purchase at a price that pleased them. (They often got lucrative consulting or employment contracts, too.) But, non investor employees were just out of work.

In many cases at that time, the assets of the company were worth more than the amount for which the shares of the company were selling. In that case, the company was purchased for the sole purpose of selling off its assets piecemeal, perhaps in bankruptcy, perhaps at an auction or perhaps a bit at a time. And employees were just out of work.