Buyout

A buyout is an investment transaction in which a company or a controlling interest in the company's shares, is purchased. A leveraged buyout (LBO) is a form of a buyout using borrowed money to purchase a company's shares, with the company's assets used as security for the loan. A financial sponsor executes a leveraged buyout to gain control of a majority of a company's shares using debt, to avoid committing a large amount of capital. A management buyout (MBO) is a form of a buyout where management of a company purchases a controlling interest in the company from existing shareholders and takes the company private. By gaining ownership through a buyout, management has the control needed to grow the business. An employee buyout is the purchase of a majority interest in a company by the company's employees, often through an ESOP structure. A buyout may also be a transaction in which employees of a company are offered financial incentive to take early retirement. For example, a distressed company may offer to buyout a significant number of its hourly workers to accelerate plans to cut costs by reducing its workforce.