Buyout

March 18, 2016 by Alexa Cleek -

A buyout is defined as the purchase of a company or a controlling interest of a corporation’s shares, product line or business. A leveraged buyout is accomplished with borrowed money or by issuing more stock.⁹

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Alexa Cleek

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Buyout

A buyout is defined as the purchase of a company or a controlling interest of a corporation's shares, product line or business. A leveraged buyout is accomplished with borrowed money or by issuing more stock.⁹

Related Terms Stock Options | Redeemable Preferred Stock | Restricted Shares Related Articles Buy-Sell Agreement - What? Why? How?

Leveraged Buyout

(LBO) A takeover of a company, using a combination of equity and borrowed funds. Generally, the target company’s assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares.³
(LBO) This is a type of aggressive business practice whereby investors or a larger corporation utilizes borrowed funds (junk bonds, traditional bank loans, etc.) or debt to finance its acquisition. The high debt-to-equity ratio enables the investors to “buyout” a smaller company with very little cash. Leveraged buy-outs can be either friendly or hostile, depending on the negotiations made.⁴

Corporation

A legal entity structure for businesses enterprises which are typically chartered by a state or the federal government, under which ownership is held by shareholders.⁶

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