What is Buyout? — definition

What is a buyout?

A buyout means an investor acquires a controlling stake in, or all of, a company. It is the most common type of deal in private equity, where the fund takes over a mature company, develops it over a few years and then sells it on.

Leveraged buyout (LBO)

In a leveraged buyout (LBO), the purchase is largely financed with debt, using the acquired company's own assets and cash flows as security. The leverage can increase the return on equity, but also increases the risk.

Common types of buyout

Management buyout (MBO) — the company's own management buys out the business.
Management buy-in (MBI) — an external management team buys and takes over the company.
Institutional buyout — a private equity fund is the main buyer.

Buyout and unlisted shares

A buyout often takes a previously listed company private again (a "take-private"), or consolidates ownership in an already unlisted company.

FAQs

Leveraged refers to debt financing. In a leveraged buyout the buyer borrows a large share of the purchase price, often using the target company's assets and cash flows as security, which can raise the return but also the risk.

A management buyout (MBO) is when the company's existing management buys out the business, often together with a private equity fund that provides capital.

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Buyout