Employee Buyout - EBO

There are two types of employee buyout. One represents employees taking control of a company. Another runs with employees not being employees any longer. Kind of the Dr. Jekyll and Mr. Hyde of finance.

In the first type, a group of employees pool their resources (and probably borrow money) to buy a majority ownership in the company they work for. Usually, this bet involves management taking control of a struggling company.

In the second form of employee buyout, staff levels are cut by offering certain workers a bunch of money to...go away. This usually happens in situations where a group of employees operate under a union contract (so that firing them outright is difficult) or if certain individuals have a contract that prevents them from being cut (you might notice this happen to your favorite sports team...we're looking at you, Carmelo Anthony).

The company then offers a severance package to entice employees to walk away. The employees can then bank the money and move onto another job (or take up fishing, etc., depending on their personal situation). Meanwhile, the company suffers through a large expense in the near term, but lowers its operating costs moving forward. The hope is that the firm will make up the money in the long run.

See: MBO. See: Management Buyout. See: LBO. See: Leveraged Buyout.

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Finance: What is MBO v LBO?17 Views

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Finance allah shmoop What is an m b o versus

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and lbo Okay let's Get their letters right first And

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n b o is a management buyout Ngos on their

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own aren't all that common But in a given company

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inside management might own same thirty percent of the stock

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They might partner with another investor who owns a twenty

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percent or more And then they might borrow say fifty

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percent in debt and take the company private fixit pivot

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tweak live with bad quarters for a while without wall

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street yelling at him And then they might sell the

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company cell or whatever Maybe take it public again will

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The distinctive feature here is that the company is already

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in place Management is doing the deal and more often

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than not essentially all the net worth of the management

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will be in the company leveraged when the embryo is

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completed And that level of financial commitment really keeps the

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team focused Because if things don't work out when they

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lose everything your house their car in there Slinky collection

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All right next up we have an lbo which is

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a leveraged buyout and it just refers to the practice

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Of taking on debt to buy a company sometimes with

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same management sometimes with different players like an lbo is

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a bigger venn diagram set than the embryo thing Well

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in an lbo the same basic thing happens But in

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a whole bunch of cases management is tossed out The

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company wouldn't be quote vulnerable unquote to an lbo Had

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management done a good job and kept the company trading

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or valued at a high multiple where it would then

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be almost impossible to make the risk reward scenario workout

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in taking out a whole lot of debt to get

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company bought and then turned in the right direction Instead

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new management in lbo is usually brought in and resembling

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moses noah and other biblical characters and their perceived greatness

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and there's a stone tablet with a new set of

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commandments Thou shalt be profitable or something like that Arguments

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are had at the board level and eventually either the

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lbo works and the company has taken public again or

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sold for a big price Or it isn't and wrath 00:02:06.63 --> [endTime] has had

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