A buyout involves the acquisition of a majority of the voting shares of a business. The intent of a buyout is to gain control over the operating and financial decisions of an acquiree. An acquirer may engage in a buyout for a number of reasons, including the following:

  • To acquire control over a key product

  • To gain ownership of certain rights, such as airport gate leases

  • To prevent technology from being made available to competitors

  • To gain entry into a new market

Buyouts are especially useful when an acquirer does not want to spend the time to build a business from scratch in a new market. Instead, it can gain instant entry by acquiring an organization that is already competing in that market.

A leveraged buyout occurs when borrowed funds are heavily used to acquire majority control over a business. These transactions can be risky, since the acquired entity may not generate a sufficient amount of cash flow to subsequently pay off the debt.

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