Definition - What does Buyout mean?

A buyout is a transaction by which one party purchases shares of a business to acquire a controlling interest in that company. A buyout occurs when the purchaser believes a firm is undervalued and can become better valued under the purchaser’s ownership. Buyouts are commonly used to describe an acquisition by private equity firms where they obtain a controlling ownership of the business rather than just providing growth equity to the exisiting ownership group.

Divestopedia explains Buyout

Like all investments, buyouts occur when an acquirer sees an opportunity to make an adequate return on their investment. The acquirer chooses the target firm if they feel it is undervalued and they believe that under the purchaser’s leadership and control, there is a likelihood that the organization could improve financially and operationally.

In the middle market, there is various terminology that describes different types of buyouts, depending on the buyer or the capital structure employed. These include:

  • Private equity buyout;
  • Management buyout;
  • Leveraged buyout;
  • Institutional buyout; and
  • Buyout fund.

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