Have you heard the saying, “if you can’t beat them, buy them”? It may sound funny, but it’s actually quite serious for those in the business world.

A buyout occurs when a person or group makes an investment in a company that’s significant enough to give them ownership equity or a majority share. When this happens, the existing equity holders of that particular company are replaced by the acquirer who thus “buys” them out.

Buyouts, in many cases, usually include having to purchase the outstanding debt of the said company as well.

Other interesting terms…

A buyout is synonymous with “acquisition” because the individual or company that buys out another individual or company essentially takes over the organization acquired. The acquirer, in this case, can replace all the leaders and employees, sometimes, even the acquired company’s name.

As of June 2021, the biggest buyout would be the Vodafone Airtouch PLC takeover of Mannesmann AG. That cost Vodafone Airtouch US$181 billion at that time.

How Does a Buyout Work?

A buyout occurs when another individual or company acquires more than 50% of a target organization. Most acquirers hire firms that specialize in funding and facilitating buyouts, but some also act alone. Buyouts are usually financed by institutional investors, wealthy individuals, or loans.

A buyout typically involves an undervalued or underperforming company. When a more prominent organization sees its value and thinks it can increase its revenue or performance, it acquires more of the target’s shares to gain control.

3 Biggest Buyouts throughout History

We have seen companies come and go over the years. While some just seemingly fell off the face of the earth, mainly because they went bankrupt, others lived on as part of more influential organizations. Five companies that were acquired by others are identified below.

Vodafone Airtouch and Mannesmann

The Vodafone Group, a multinational telecommunications company, bought giant German telco Mannesmann in 1999. Mannesmann accepted Vodafone’s offer of US$181 billion in February 2000. Vodafone hoped the acquisition would help it change the global telecom landscape, but it didn’t. In the years following the buyout, Vodafone was forced to write off billions of dollars to make up for the acquisition cost.

AOL and Time Warner

Internet service provider (ISP) America Online (AOL) acquired mass media firm Time Warner Inc. in 2000 for US$165 billion. AOL wanted to tap Time Warner’s publishing, entertainment, and news dominance, but the companies clashed in both management style and culture. The dot-com bubble burst and the subsequent recession didn’t help either. AOL and Time Warner eventually parted ways and continue to operate as separate companies today.

Verizon Communications and Verizon Wireless (Vodafone)

In 1999, Vodafone Airtouch and Bell Atlantic’s mobile division merged to form Verizon Wireless. By 2013, Verizon Communications Inc. bought Verizon Wireless for US$130 billion. Verizon Communications took complete control of Verizon Wireless as part of the deal, which ended Vodafone’s 14-year-long stint in the U.S. telecom market.

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Not all buyouts succeed, as you’ve seen from the examples above, but mergers and acquisitions (M&As) continue to ensue today as a means for acquirers to gain more significant market shares or revenues and acquirees to save whatever’s left of their initial investments and hard work.