Startup Dictionary
Buyout
Definition
The purchase of a controlling share in a company.
Deep Dive
A buyout refers to the purchase of a controlling stake in a company, giving the buyer significant influence or full ownership. This transaction can take various forms, most notably a Management Buyout (MBO), where the company's existing management team acquires the controlling shares, or a Leveraged Buyout (LBO), where a significant amount of borrowed money (leverage) is used to finance the acquisition, often by private equity firms. The objective is typically to take the company private, restructure operations, improve efficiency, and eventually sell it for a higher return.
Examples & Use Cases
- 1A private equity firm executes a leveraged buyout of a mature manufacturing company, using a combination of debt and equity to acquire a controlling stake, with the aim of optimizing operations and eventually reselling it.
- 2The current executive team of a family-owned distribution business pools their resources and secures bank financing to complete a management buyout (MBO) from the retiring founders.
Related Terms
Leveraged Buyout (LBO)Management Buyout (MBO)Private Equity