According to Global M&A, close to $1 trillion worth of mergers and acquisitions were completed during Q3 in 2021. This has largely been supported by the global technology market, while this number will also have included a large number of buyouts.
Buyouts describe transactions that transfer ownership of a business from one individual to another, or a fellow commercial entity or investment consortium.
In fact, buyouts can manifest themselves in a number of different ways, with a number of diverse and viable options available to companies. We’ve outlined these in further detail below:
We’ll start with what’s arguably the most common type of buyout, with an acquisition usually seeing a larger and more established business procure a smaller venture and incorporate this into their existing model.
As we’ve already touched on, this type of buyout is most common in high-growth sectors such as the technology market. In fact, some commercial entities in this type of market launch with the specific objective of profiting from a future acquisition, which may serve as the end goal after the culmination of a three or five-year plan.
This is also prevalent in the online gambling space, where disruptive and independent startups often look to compete aggressively with established businesses or use innovation as a lever through which to secure an acquisition.
Often, firms will be selling their innovative ideas or technology to larger companies through acquisition, with this type of buyout often delivering significant returns in the case of high-growth startups.
#2. Management and employee buyouts
Another common type of buyout is driven internally, either through a senior management group or employees who already work within the business.
In the case of a management buyout, some or all members of a company’s existing leadership team move to acquire a portion of the business.
Usually, the agreed percentage of the business will be procured from a parent company or non-artificial person, while this can take the form of a full or partial acquisition that leads to a subsequent change in ownership.
In the case of an employee buyout, a selection of staff members within a business will be offered the chance to invest their own capital and purchase the venture from the existing owners. This may occur when employees have become dissatisfied with the existing ownership, or when a business is closing down and skilled staff members want to continue their work.
#3. Initial Public Offering (IPO)
In the case of an initial public offering (IPO), owners retain complete control over the sale of company shares to a broad selection of potential buyers.
With an IPO, an entrepreneur or business owner registers their company on a public stock exchange, making a predetermined value of stores available to the general public.
This will include both investors and other businesses, while owners can also choose how much of their venture is available for sale through the marketplace.
In rare cases, an IPO will drive a complete sale and act as a comprehensive form of buyout, while it’s most prominent among high-profile and relatively large corporations.