What strategy might private equity firms use to boost their own returns in a leveraged buyout?

Private equity firms often look to enhance their returns through a variety of financial engineering strategies, one of which includes increasing the company's debt to facilitate dividend payments. This approach, also known as a "dividend recapitalization," allows private equity firms to extract cash from the company shortly after the buyout, providing immediate returns to their investors without having to sell the business or increase operational revenue.

By taking on additional debt, the firm can issue dividends to its equity holders, effectively leveraging the company’s existing cash flows to boost investor returns. This strategy capitalizes on the benefits of borrowing, as the interest on the new debt may be tax-deductible, further enhancing net returns. It also aligns with the private equity model of generating high returns in a relatively short investment horizon.

The other strategies, while potentially relevant in other contexts, do not typically serve the same purpose in terms of boosting immediate returns for private equity firms. For instance, reducing a target company's workforce might help with cost savings but could come at the expense of long-term growth and employee morale. Investing heavily in marketing campaigns typically requires capital expenditures that may not yield immediate returns. Implementing cost-inefficient processes runs counter to the operational improvements private equity firms usually seek, as such practices would likely