Buyouts are common in the corporate world. Even if a company isn’t publicly traded, an investment firm may purchase a controlling interest in it. This is typically done by purchasing shares of the company. Investment firms may agree to purchase enough shares of the company so that they have a controlling interest in it. With that said, some investment firms may choose to sell these shares to another investment firm later down the road during a secondary buyout.
What Is a Secondary Buyout and How Does It Work?
A secondary buyout involves an investment firm — typically a private equity firm or venture capital firm — selling its controlling interest stake in a company to another investment firm.
Investment firms typically don’t hold their investments forever. After all, they are in the business of making money. During a secondary buyout, an investment firm will sell its controlling interest stake in a company to another investment firm. Assuming the value of the company has increased, the investment firm will generate profits from the resell.
How a Secondary Buyout Works
The process for a secondary buyout is relatively simple. All secondary buyouts come after a standard buyout. Standard buyouts are acquisitions in which an investment firm purchases a controlling interest in a company.
Standard buyouts can occur with publicly traded companies as well as privately traded companies. To acquire a controlling interest in a publicly traded company, an investment firm may purchase stock shares of the company on a public stock market. To acquire a controlling interest in a privately traded company, on the other hand, an investment firm may negotiate a deal with the company’s owners to purchase stock shares directly from them.
Secondary buyouts come after a standard buyout. After acquiring a controlling interest in a company, an investment firm may sell those stock shares to another investment firm during a secondary buyout.
The Impact of a Secondary Buyout
How does a secondary buyout affect companies exactly? After a secondary buyout has concluded, controlling interest in the company will change hands. The original investment firm will no longer have a controlling interest in the company.
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