What is a rescue buyout?
A company or a business in a rescue situation is one that is in potential financial difficulties, either because it finds itself:
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unable to pay its debts in the short term, or
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having insufficient capital or alternative finance to fund medium- to long-term development
In a private equity context, following the credit crunch of 2007 through 2008 many private equity funds looked to acquire distressed businesses, with a view to turning them around and adding them to their list of portfolio companies. This type of distressed investment is counter-cyclical and may be a useful way to diversify risk within a portfolio. Conversely, existing private equity investors in distressed businesses became potential targets if their portfolio company entered the 'zone of insolvency'.
The following types of company are usually suitable for a turnaround by private equity firms, namely those which:
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require operational and financial restructuring
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have structural problems
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have a good underlying business (ie a good product/service with a ready market and demand for sales), or
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have poor management (which can be strengthened)
Due
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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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