Today in this article let us try to understand the
about what does Leveraged Buyouts(LBO) means? Which are the different types of
Leveraged Buyouts(LBO)? and also the difference between Management Buyout vs
Management Buy-In.
Leveraged Buyouts (LBO)
Leveraged Buyouts refers to the
acquisition made by another company or management using a large amount of borrowed
funds in order to meet the cost of acquisition and the assets of the acquiring
company is used as guarantee for raising the loan. Later the loans are been
paid using the cash flows of the acquired firm.
Types of Leveraged Buyouts (LBO)
There are three types of Leveraged
Buyouts. They are as follows,
§ Management Buyouts (MBO)
§ Management Buy-in
§ Going Private Buyouts
Now let us try to understand what does different types of leveraged
means
§ Management Buyouts
Management
Buyouts refers to the acquisition the existing management buys or acquires the
large part of the company. In this LBO the company’s management buys all the
publicly held shares as a result of which company goes private. The management
will then have to pay the premium to all the publicly held shareholders to
acquire and the finance is raised through borrowing the funds from outside. The
reasons for the Management Buyouts are
·
To
avoid the raider to acquire the company this will result in new management.
·
To
make money by buying the shares of the company in the long run for themselves
§ Management Buy-in
Management
Buy-In refers to a manager or a management team from outside the company and
makes subsequent arrangements to acquire the majority shares in a company and
become the new management in that company.
The MBI often competes with the other acquirers in search of a suitable
business. Usually the manager has a team with a sufficient experience in
managing director level.
§ Going Private Buyouts
Going Private Buyout refers to the
acquisition of the stock of company by itself in order to go private by
acquiring the publicly held shares.
Management Buyout Vs Management Buy-In
The difference in the Management
buyout or Management Buy-In is just the position of the management. In
Management Buyout the existing management of the company acquires the shares of
the company to avoid the takeover or to make the money for them while
Management Buy-In a management team with a manager buys or purchases the company’s
majority shares and then becomes the new management of the company.
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