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How does a corporate buyout work?

On Behalf of | Mar 30, 2018 | Business Law

Many business owners in the Las Vegas area or in other parts of Nevada may be looking for opportunities to expand, especially since the economy seems to be doing fairly well right now.

One of the ways in which a business might consider expanding is by conducting a buyout of a competitor or other firm. After reviewing the firm’s records and conducting its other due diligence, the company interested in buying will make an offer to buy enough shares of the target firm’s stock so as to control the direction of that firm.

This will usually cost a premium since the goal is to get control of the other company; however, paying a little extra for stock may be well worth it if the new company carries with it a solid prospect of higher revenues, long-term reduced costs or, ideally, both.

One type of buyout a company may need to resort to is the leveraged buyout, or LBO. In a leveraged buyout, the company looking to acquire another firm will not be expected to put up a lot of cash, relatively speaking. They may have to front around 10 percent, but a lender will cover the balance of the purchase price. The LBO works to the advantage of a growing firm when the additional profit it gets from the acquired business exceeds the interest payment on its loan.

Even uncontroversial buyouts are complicated legal affairs that require detailed knowledge and experience with business law. Moreover, buyouts can get particularly contentious when the leadership of a company does not want to sell to the firm attempting a buyout. Litigation is a common result in such situations.

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