What are buyouts?
It is the buying of a company’s share by another party that ends up taking control of the firm in question. The buyer benefits because they ride on the market and goodwill already created. It gains from the already established market, name, and structures.
Buyouts if handled well can be music to the ears of the shareholders. The price that the buyer quotes is usually premium to justify its sale. It is higher than the actual value of the stock. In the run up to closing the deal, the stock price will inch closer to the quoted price.
Entry of a new competitor to the negotiation table during the buyout changes the scenario. The new dealer will offer a better price than the one previously quoted tipping the playing field for the seller. The new high price pushes the prices further up making the stock very profitable to the shareholder.
When handling buyouts, it is important to understand some basic facts such as:-
Buyouts can happen even to robust and stable companies
The notion that buyout only happens to weak companies is a myth. The truth is that even reliable companies get approached for acquisitions. Large firms that are seeking to dominate a certain market may decide to take up the other smaller but well-performing businesses to improve their portfolio and to strengthen their base.
Stock buyouts take a long time to complete
There is no exact estimated time for a buyout completion because there is a lot of back and forth communication between the buyers and the sellers. It gets even more complicated when it emerges that there are more interested parties. If competition comes in and places a better bid, then the process could take more time.
Sold stocks are considered as capital gains and as such, attract taxation. The percentage of tax depends on the duration of time that you have held on to this stocks. The shorter the term, the higher the tax. The rate reduces significantly when the stocks have aged in your hands. Therefore, it is wise to think long-term.
Filing and proper book keeping are vital
It is essential for the company being bought to have its documentation right. The buyers will be keen to know the actual position of the enterprise regarding loss or profit making, hence estimating its real value. Filing and correct bookkeeping will assist the shareholders to determine the net worth of the assets. Missing gaps in the records could negatively impact on the value.
The buyer can choose to maintain the identity of the buyout
The reasons that the buying company might want to hold on to the identity of the buyout are varied. Business and brand continuity could be one of them. Loyal customers who are accustomed to a certain brand will find it hard to change to a new name even if the product or service quality is the same. The transition of ownership with the old identity is easier with other stakeholders such as the suppliers and employees.
Stock buyouts is an exciting phase of business. It offers opportunities and challenges in equal measure. Both parties need to be careful to ensure they get value for money and stocks. It is wise to employ an experienced hand when undertaking a stock buyout.