buyout

noun buy·out \ ˈbī-ˌau̇t \
Updated on: 13 Oct 2017

Definition of buyout

1 :an act or instance of buying out
2 :a financial incentive offered to an employee in exchange for an early retirement or voluntary resignation

Recent Examples of buyout from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'buyout.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of buyout

1907


buy out

verb

Definition of buy out

transitive verb
1 :to purchase the share or interest of
2 :to purchase the entire stock-in-trade and the goodwill of (a business)

First Known Use of buy out

1598


Financial Definition of BUYOUT

buyout

What It Is

A buyout is the purchase of at least 51% of a company. Under a buyout, the previous ownership loses control over the company in exchange for compensation.

How It Works

The buyout process usually begins when an interested purchaser or group of purchasers makes a formal buyout offer to a company's board of directors, who are the representatives of the company's shareholders. Negotiations and/or a tender offer ensue, and the board of directors eventually either recommends that the shareholders sell their shares to the purchaser or discourages the shareholders from doing so. Company managers and directors do not always welcome buyout offers, but because the shareholders ultimately decide whether to sell the company, people consider some buyouts hostile and others friendly. Regardless, the purchaser usually pays a premium for shares that give it controlling interest in a company.

Companies, private individuals, private equity firms, pension funds, lenders, and other institutions usually conduct or supply the money for buyout transactions. Companies that specialize in buyouts (buyout firms) exist solely to fund and facilitate buyouts, and they may act alone or together on a deal. They usually get their money from institutional investors, wealthy individuals, or loans.

Buyout firms usually seek out and purchase underperforming or undervalued companies in order to "fix" them and sell them or take them public many years later. When it sells one of its companies, the buyout firm takes a commission, which it passes on to its investors. Buyout firms are also often involved in management buyouts, which are buyouts conducted by the management of the company being purchased, and they often play key roles in leveraged buyouts, which are buyouts that are funded with borrowed money.

Why It Matters

Buyouts occur for several reasons. Some occur because the purchaser believes a company's assets are undervalued and can be resold for a profit. Others occur because the purchaser believes it will receive financial and strategic benefits from the buyout such as higher revenues, easier entry into new markets, less competition, or improved operational efficiency. Ultimately, nearly all buyouts occur because the purchaser believes it can provide more value to a company's shareholders than the company's current management can.



BUYOUT Defined for English Language Learners

buyout

noun

Definition of buyout for English Language Learners

  • : the act of gaining control of a company by buying the parts of it you do not own


Law Dictionary

buyout

noun buy·out \ ˈbī-ˌau̇t \

legal Definition of buyout

:an act or instance of buying out

buy out

transitive verb

legal Definition of buy out

1 :to purchase the share or interest of
2 :to purchase the entire tangible and intangible assets of (a business)


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