Business, Legal & Accounting Glossary
The purchase of a controlling share in a company.
finance The acquisition of a controlling interest in a business or corporation by outright purchase or by purchase of a majority of issued shares of stock.
A buyout is a transaction in which one party acquires shares in another business in order to gain control of that business. A buyout occurs when the purchaser believes a business is undervalued and can be enhanced through the purchaser’s ownership. Buyouts are frequently used to refer to private equity firms acquiring a controlling stake in a business rather than simply providing growth capital to the existing ownership group.
As with any investment, buyouts occur when an acquirer sees an opportunity to earn a reasonable return on their capital. The acquirer selects the target firm if they believe it is undervalued and believes that the organisation can improve financially and operationally under the purchaser’s leadership and control.
In the middle market, there is various terminology that describes different types of buyouts, depending on the buyer or the capital structure employed. These include the following:
Platform Company
Tuck-In Acquisition
Leveraged Buyout
Management Buyout
Buy-In Management Buyout
Institutional Buyout
Leveraged Buyout Analysis
Leveraged Buyout Valuation Method
A buyout is an investment transaction in which a company or a controlling interest in the company’s shares, is purchased. A leveraged buyout (LBO) is a form of a buyout using borrowed money to purchase a company’s shares, with the company’s assets used as security for the loan. A financial sponsor executes a leveraged buyout to gain control of a majority of a company’s shares using debt, to avoid committing a large amount of capital. A management buyout (MBO) is a form of a buyout where management of a company purchases a controlling interest in the company from existing shareholders and takes the company private. By gaining ownership through a buyout, management has the control needed to grow the business. An employee buyout is the purchase of a majority interest in a company by the company’s employees, often through an ESOP structure. A buyout may also be a transaction in which employees of a company are offered financial incentive to take early retirement. For example, a distressed company may offer to buyout a significant number of its hourly workers to accelerate plans to cut costs by reducing its workforce.
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This glossary post was last updated: 26th January, 2022 | 0 Views.