What does ‘buyout’ stand for?
In finance, a buyout is an investment transaction by which the ownership equity, or a majority share of stock of the company is acquired. The acquirer « Buys out » the present equity holders of the target company. A buyout will often include the purchasing of the target company’s outstanding debt, which is referred to as « assumed debt » by the purchaser.
A Leverage Buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. In an LBO, there is usually a ratio of 80% debt to 20% equity. The purpose of leverage buyouts is to allow investors to make large acquisitions without having to commit a large amount of capital.
A Management Buyout (MBO) is a transaction where a company’s management team purchases the assets and operations of the business they manage. MBO is appealing to professional managers because of the greater potential rewards from being owners of the business rather than employees. MBOs are favored exit strategies for large corporations who wish to pursue the sale of divisions that are not part of their core business, or by private businesses where the 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.
A Management Buy-In (MBI) is a corporate action in which an outside manager or management team purchases an ownership stake in the company and replaces the existing management team. This type of action can occur when a company appears undervalued or has a poor management team.
A Buy-In Management Buyout (BIMBO) is form of a buyout that incorporates characteristics of both a management buyout and a management buy-in. A BIMBO occurs when existing management, along with outside managers - decides to buyout a company. The existing management represents the buyout portion while the outside managers represent the buy-in portion.
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