What are Buyout Firms?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 28 January 2020
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Buyout firms are firms that manage the process of purchasing a controlling interest in the stock of a targeted company, and eventually oversee the strategy of either operating that company or dismantling it as part of a corporate raid. In many cases, firms of this type are composed of venture capital groups or private equity houses. While the reasons for the acquisitions may vary, depending on the ultimate goals of the owners of the buyout firms, the process is more or less the same in any given situation.

The ultimate purpose of buyout firms is to systematically allow a group of investors to identify companies that they want to control. The selection of a given company often depends on what type of plans the investors have for the acquisitions. In some cases, the goal may be to acquire enough shares in a given company to force a takeover that ultimately results in selling off the company’s assets and reselling the shell business to another group of investors. At other times, the idea is to acquire a business and operate it over the long term as a means of creating a steady stream of revenue for the members of the buyout firm.


In most cases, the strategy of buyout firms begins with the task of acquiring shares of stock in the targeted company. Since many governments require investor groups to declare their intentions once they control a certain percentage of stock in a specific company, the true aim of the buyout attempt will be made clear at a relatively early point in the process. This requirement provides the current owners of the targeted business the opportunity to determine if they are open to a takeover attempt, or if they would prefer to take the legal steps necessary to fend off the attempt and maintain control of the company.

When business owners are open to being acquired, the work of buyout firms tend to move forward very quickly. Arrangements are made to allow the firms to acquire enough stock to amount to a controlling interest in a very short period of time. Typically, the current board of directors will support the attempt and the acquisition is relatively easy for all parties concerned. This set of circumstances is more likely to occur when the buyout firms involved have the stated purpose of continuing to operate the acquired businesses rather than dismantling them and earning a profit from the sale of different holdings and assets of the acquired companies.

Should the buyout attempt involve a hostile takeover attempt, buyout firms may find the process of gaining control of the targeted companies a little more difficult. This is because the current company owners may use a number of strategies to defuse the efforts, including allowing the business to be acquired by interests that are considered to be friendly to the company, or even choosing to convert stock plans into some other form, such as the conversion from common and preferred shares to an employee stock ownership plan. When these efforts at resistance come early in the process, there is a better chance of defeating the efforts of the buyout firms and maintaining control of the company, although sometimes at a cost that takes several years to recoup.



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