Partner Buyout: An Opportunistic Way to Build More Equity Value. Management Buyout and Leveraged Buyouts financing processes can be orchestrated in the same way in order to help individuals buyout a partner or majority owner of a business. Partner buyouts can be financed on an all debt basis because the partner already has some equity in the business and this equity can be leveraged as the security in the business.
Even during this sluggish economy, some of our clients positioned themselves to build much greater business and equity value by buying out other owners or buying out partners. While some of these opportunities came about because owners were interested in having access to more capital, most of time it was the result of owners having different objectives. One owner wanted to grow the business, and the other didn’t.
This situation can be common for high growth businesses that are presented with an opportunity to sell. The opportunity to buy out a shareholder or buying out a partner can also be common for family owned businesses where the younger generation wants to grow the business, and the other older generation prefers the status quo.
For owners and employees that believe in the future of their business, a partner buyout or owner buyout can be a smart financial move. A partner buyout or owner buyout is similar to a management buyout with one, big exception: Owners typically have more equity ownership than managers and thus more financing alternatives.
Many partner buyouts or owner buyouts can be financed on an all debt basis, which allows the buying owner to secure all the company’s equity personally. As the debt of the business is repaid down, the value of the business and the value of the new owner’s equity increases. An even smarter move is to finance the partner buyout with debt that does not require personal guarantees, so the owner does not increase their own personal financial risk.