Buyout is a generic term usually used to describe the acquisition by a management team, backed with equity finance from a private equity investor, of an established business that has a proven revenue stream and generates positive cashflow.
Background to buyouts
Why sell?
The decision by a seller to dispose of a company or business may arise for a variety of reasons, including:
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strategic reasons, such as a corporate group selling:
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a non-core business, division or company to allow the remainder of the group to concentrate on its core activity, or
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part of its business as a pre-emptive or defensive action against a potential hostile takeover bid
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to raise funds to ease financial pressures elsewhere in the seller’s business
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to release funds for investment elsewhere, especially in the case of individual sellers or exiting venture capital investors
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the retirement or death of current owners
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in distressed circumstances where solvency is an issue (including in a liquidation), and
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an exit by an existing private equity investor
Often sellers prefer to dispose
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Jurisdiction(s):
United Kingdom
Key definition:
Buyout definition
What does Buyout mean?
This is the purchase of a company or a controlling interest in a company’s shares. This may happen when a company’s existing managers wish to take control of the company (in which case it is normally termed a ‘management buyout’) or when a private equity house wishes to acquire a controlling stake using third party debt to make the acquisition, (in which case it is normally termed a ‘leveraged buyout’).
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