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The Various Forms of a Buyout

March 29, 2019

 

 

 

A buyout is a business transaction in which one party purchases the majority or all of an organization’s shares in order to acquire control of that company. The total shares purchased must be 51% or more. In exchange for compensation, the current owners of the equity lose any organizational control. It is common for a buyout to include purchasing any outstanding debt of the target company. The debt is then assumed by the purchaser.

 

If your company is involved in a buyout, a small business lawyer in Santa Monica can assist you during the process.

 

The Various Forms of a Buyout

 

A management buyout takes place when the management team of an existing organization acquires a significant portion (if not all) of the business’ equity from the parent company or the owners of the business. This type of buyout appeals to managers because they can benefit from greater financial and professional rewards as owners instead of employees. Management buyouts are often the preferred exit strategy for owners in situations in which a large organization seeks to sell a particular divisions that is not its primary source of revenue or when the business owner seeks to retire

 

A leveraged buyout is the acquiring of another business by borrowing a substantial amount of money and using those funds for the cost of acquisition. In conjunction to any assets owned by the acquiring company, the assets owned by the organization being acquired are used as collateral.

 

The term “buyout” applies to more than one business acquiring equity in another. An employee buyout is a common method companies use to reduce costs and the number of employees. In this situation, the employer offers all or some employees a severance package in exchange for voluntarily leaving the organization. An employee buyout can range from a month’s pay complemented by an additional paid week for every year worked to a lump sum of tens of thousands of dollars. Buyouts of this nature are typically offered to non-critical staff.

 

The Advantages and Disadvantages of Buyouts

 

Advantages:

  • Getting rid of any areas of the business that are not highly profitable or are a duplication of other areas of the company

  • Lessening operational expenses

  • Reducing competition by acquiring competitors

  • Growing the product line by purchasing a smaller company with a promising product or innovative technology

 

Disadvantages:

  • Increased debt

  • The loss of key personnel

  • Staff’s resistance to change

  • The realistic potential of clashing corporate cultures

 

During a buyout, both sides of the transaction will see both advantages and disadvantages. By working with a small business lawyer, you can ensure that your company and employees will be treated equitably.

 

We can Help with Your Organization’s Buyout

 

The attorneys at Verhagen Bennett understand and appreciate the needs of organizations and their leaders. Whether your company is on the brink of going public or in the early stages of development, we offer strategic counsel and insight that will enable you to protect your business as you reach your professional goals.

 

Our experienced professionals provide a diverse array of legal services that are tailored for your organization. We have created specialized offerings for individuals, entrepreneurs, and companies. To learn more about how your business can benefit from our pragmatic approach, schedule an appointment or call (310) 917-1064 today.

 

For questions or comments about this post, please email us directly at: info@VerhagenBennett.com

 

© 2018 Verhagen Bennett LLP — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

 

 

 

 

 

 

 

 

 

 

 

 

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