A method of business combination is the leveraged buyout (LBO). In a leveraged buyout, the buyers borrow a major proportion of the purchase price, pledging the purchased assets as collateral for the loan. The buyers may be an outside group of investors, another company, or the manager of the firm or division that is being sold. Typically, the leverage arises from the payment of the purchase price to the seller (or alternatively, to a lender) using some of the actual earnings of the acquired firm. Once the assets are purchased, the cash flow from their operations is used to pay the principal and interest of the loan. In some cases, an LBO can be used to take a firm out of public ownership and into private ownership, in a technique called going private. Any kind of LBO can create an agency problem between the firm’s mangers and public shareholders, in that the managers usually have more and better information about the value of the firm than do the shareholders. The LBO or merger method usually requires the target firm be either cash-rich (generate an abundant cash flow) or sell for less than the separate value of its assets. Additionally, forecasts of future cash flows for the target firm are necessary to estimate the riskiness of the deal over time.