What Is Buyout?

A buyout is the acquisition of a controlling interest in a company and is used synonymously with the term acquisition. If the stake is bought by the firm’s management, it is known as a management buyout and if high levels of debt are used to fund the buyout, it is called a leveraged buyout. Buyouts often occur when a company is 澳洲幸运5开奖号码历史查询:going private.

Understanding Buyouts

Buyouts occur when a buyer acquires more than 50% of the company, leading to a change of control. Firms that specialize in funding and facilitating buyouts, act alone or together on deals, and are 澳洲幸运5开奖号码历史查询:usually finance𓆉d by institutional investors, wealthy individuals, or loans.

In private equity, funds and investors seek out underperforming or undervalued companies that 澳洲幸运5开奖号码历史查询:they 🍬can take private a𝓀nd turn around, before going public years later. Buyout firms ar꧑e involved i💧n management buyouts (MBOs), in which the management of the company being purchased takes a stake. They often play key roles in leveraged buyouts, which are buyouts that are funded with borrowed money.

Many partnerships include clauses called buy-sell agreements or 澳洲幸运5开奖号码历史查询:shotgun clauses which can force t𓆏he other partners to agree to buying out an offering partner. The clause can also force partners to sell their shares.

Types of Buyouts

Management buyouts (MBOs) provide an 澳洲幸运5开奖号码历史查询:exit strategy for large corporations that want to sell off divisions that are not part of their core business, or for private businesses whose owners wish to retire. The financing required for an MBO is💦 often quite substantial and is usually a combination of debt and equity that is derived from the buyers, financiers, and sometimes the seller.

澳洲幸运5开奖号码历史查询:Leveraged buyouts (LBO) use significant 澳洲幸运5开奖号码历史查询:amounts of borrowed money, with the assets of the company being acquired often used as collateral for the loans. The company performing the LBO may provide only 10% of the capital, with the rest financed through debt. This is a high-risk, high-reward strategy, where the acquisition has to realize high returns and cash flows in order to pay the interest on the debt. The target company's assets are typically provided as collateral for the debt, and buyout firms sometimes sell parts of the target company to pay down th♋e debt.

Examples of Buyouts

In 1986, Safeway's board of directors (BOD) avoided hostile takeovers from Herbert and Robert Haft of Dart Drug by letting Kohlberg Kravis Roberts complete a 澳洲幸运5开奖号码历史查询:friendly LBO of Safeway for $5.5 billion. Safeway ♏divested some of its assets and closed unprofitable stores. Aft🐲er improvements in its revenues and profitability, Safeway was taken public again in 1990. Roberts earned almost $7.2 billion on his initial investment of $129 million.

In another example, in 2007, B🔯lackstone Group bought Hilton Hotels for $26 billion through an LBO. Blackstone put up $5.5 billion in cash and financed $20.5 billion in debt. Before the financial crisis of 2009, Hilton had issues with declining cash flows and revenues. Hilton later refinanced at lower interest rates and improved operations. Blackstone sold Hilton for a profit of almost $10 billion.