What Is a Buyout Offer?
A buyout offer is a proposal made by one party to another to end a business contract or relationship, often early, in exchange for something of value. Some buyouts give the person making the offer a valuable asset. Other buyouts attempt to remove competition or a financial burden. Understanding some common buyout offers will help you determine when to add this strategy to your business practices.
Businesses sometimes find that specific employees will cost their companies more than those workers are worth, but the employees still can't be let go. This occurs when an employee has an unbreakable contract, often in the case of top executives or union workers. To reduce its long-term financial burden, a company might offer an overly expensive employee a large lump sum of money in exchange for ending his contract early. The company offers a sum that is less than the total value of the contract, but the employee doesn’t have to work years to earn the money. Even if the company doesn’t save much on the salary portion of the contract, it can save significantly on long-term payroll taxes, insurance, health care costs, pension contributions and potential workers’ compensation claims.
If you’re in business with an investor or general partner, one of you might want to buy the other partner out. Some partners offer to sell out when they are tired of trying to make a go of the business. Others offer a buyout when they can’t get along with a partner but want to keep the business. Still others try to take advantage of a partner’s personal financial problems, trying to get the business cheap because the partner needs money now. If you’re interested in buying out a partner or one has made an offer to you, work with a business broker to accurately value the company.
If you negotiate a lease and decide it’s not worth the money you’re paying, you can offer the lessor an early buyout. You might have a lease with a landlord, auto dealer or equipment renter and discover it would be less expensive to buy what you need instead. Contact your lessor about ending the contract early, after you’ve done the math to determine an offer that makes sense for both parties. Point out that not only will your lessor get cash quicker, it will be able to earn interest on that money and receive its property back in better shape to lease to someone else.
Some buyouts are offers by individuals or groups to purchase at least 51 percent control of a business, which can be in the form of stock shares or partnership rights. In some cases, a board of directors must notify shareholders of a buyout offer, which the shareholders must approve. In these cases, the buyers often must reveal their plans for the company, which might be to merge it with another, continue to operate it as is, spin off parts of it, or break it up and sell its assets.