In finance, a buyout is an
investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
transaction by which the
ownership equity
In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $2 ...
of a
company
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
, or a majority share of the
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
of the company is acquired. The acquiror thereby "buys out" the present equity holders of the target company. A buyout will often include the purchasing of the target company's outstanding debt, which is referred to as "assumed debt" by the purchaser.
Non-finance usage
The term may apply more generally to the purchase by one party of all of the rights of another party with respect to an ongoing transaction between the two. For example:
*An employer may "buy out" an employee's contract by making a single prepayment, so as to have no ongoing obligation to employ the person;
*A landlord may buy out the remainder of a tenant's lease, effectively paying them to vacate.
*A government may buy out homes in a
floodplain
A floodplain or flood plain or bottomlands is an area of land adjacent to a river which stretches from the banks of its channel to the base of the enclosing valley walls, and which experiences flooding during periods of high discharge.Goudi ...
or other area subject to hazard. The language used by
FEMA
The Federal Emergency Management Agency (FEMA) is an agency of the United States Department of Homeland Security (DHS), initially created under President Jimmy Carter by Presidential Reorganization Plan No. 3 of 1978 and implemented by two Ex ...
, a United States agency, is "acquisition".
*In
Major League Baseball
Major League Baseball (MLB) is a professional baseball organization and the oldest major professional sports league in the world. MLB is composed of 30 total teams, divided equally between the National League (NL) and the American League (A ...
, a club option is an optional year at the end of the ballplayer's contract that may be guaranteed at the discretion of the team. Usually, the option comes with a "buyout" which represents a fraction of the value of the option. If at the time that the club is in a position to exercise its option and the team decides not to exercise the option, the team will usually pay the buyout and decline the option. Generally, this results in the ballplayer becoming eligible to be a
free agent
In professional sports, a free agent is a player who is eligible to sign with other clubs or franchises; i.e., not under contract to any specific team. The term is also used in reference to a player who is under contract at present but who i ...
. Alternatively, if the contract turned one of the ballplayer's arbitration-eligible seasons into an option season, the team can decline the option with the ballplayer then entering the arbitration process instead.
*In real estate, a landlord has the opportunity to buy out their tenant on a mutually agreed upon price. Most of the time, landlords use buyouts to remove rent-stabilized tenants and move in a tenant who will pay a higher rent. This type of buyout can create benefits for both parties.
See also
*
Buyout clause A buyout clause or release clause refers to a clause in a contract that imposes an obligation on another organisation wishing to acquire the services of the employee under contract to pay the (usually substantial) fee of the clause to the organisat ...
*
Employee buyout
*
Leveraged buyout
A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money ( leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loa ...
*
Management buyout
A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management-, and/or leveraged buyout became noted phenomena o ...
*
Mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
*
Stub (stock)
*
Takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...
Notes and references
Corporate finance
Stock market
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