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Buyout

A buyout is the acquisition of a company’s controlling interest, often by purchasing a significant portion or all of its outstanding shares. Buyouts can be conducted by private equity firms, other companies, or the company’s own management. The purpose of a buyout is typically to gain control of the company, restructure its operations, or take it private. Buyouts can be friendly, where the company agrees to the acquisition, or hostile, where the company’s management opposes the deal.

Example

A private equity firm might conduct a leveraged buyout of a public company by purchasing the majority of its shares, taking the company private to restructure its operations and improve profitability before eventually selling it or taking it public again.

Key points

• A buyout involves acquiring a controlling interest in a company.

• Can be conducted by private equity firms, other companies, or management.

• Buyouts can be friendly or hostile, and often involve taking the company private.

Quick Answers to Curious Questions

The purpose is to gain control of the company, often to restructure operations, improve profitability, or take the company private.

An LBO is a buyout where the acquisition is primarily financed through debt, with the acquired company’s assets often used as collateral.

A friendly buyout is agreed upon by the company’s management and shareholders, while a hostile buyout is opposed by the company’s management but pursued by the acquiring party.