Buyout

A buyout occurs when an investor or a group of investors purchases a significant portion, if not all, of a company's shares, gaining control of the company's management and operations. Buyouts can be conducted by private equity firms, large corporations, or even the company’s current management. There are different types of buyouts, including leveraged buyouts (LBOs), management buyouts (MBOs), and secondary buyouts.

In a leveraged buyout, the acquiring entity uses a significant amount of borrowed funds (debt) to finance the purchase. The assets of the acquired company often serve as collateral for the loans. Management buyouts involve the company's existing managers buying out the current owners to take control. Secondary buyouts occur when one private equity firm sells a portfolio company to another private equity firm. Buyouts can lead to significant restructuring, changes in strategy, and operational improvements aimed at increasing the company’s value.

1. A private equity firm purchasing a majority stake in a struggling company to revamp its operations and improve profitability.
2. A management team buying out their company’s shareholders to gain full control and implement new strategies.
3. A larger corporation acquiring a smaller competitor through a buyout to expand its market share.