What is a Buyout Firm?
A Buyout Firm can be the same as a private equity firm but it does not have to be. A buyout happens when one company acquires another company. This can happen by buying the entire company, or obtaining enough equity, more than 50 percent, of the company to have control of it. When you own more than 50 percent of a company, you have the majority of voting shares of that company. A buyout firm is the company that is doing the acquiring. The buyout firm also obtains the debt of the company in which they are buying. That debt becomes assumed debt of the buyout firm.
A buyout firm typically gets involved when the company under consideration is not performing well and perhaps not highly valued. The plan is to improve the operations and income of the company with a change of ownership and those controlling the decisions. To begin the buyout process, we at Brush Creek private equity firm make an offer to the board of directors of the companies that we wish to acquire. After that, we begin the process of negotiation.
In the process, we may acquire subordinated debt. This type of debt is considered a minor debt, which means it is often paid last. It is usually a loan or bond that was not secured at the time of approval and it falls lower in priority when debts are paid. If we own the subordinated debt, then we may not see payment on that debt for quite some time, if at all. The company that owes us the debt may have bigger debts than ours to worry about first. If we now owe a subordinated debt as a result of an acquisition, that may be one of the last debts that we have to pay. We can focus on paying the bigger, more prioritized debt first.