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Private equity buyout funds make up the largest segment of private market strategies. Buyout managers aim to take a controlling stake in mature businesses with the intention to improve the business and exit at a higher multiple.


Buyouts in a nutshell

  • Target companies. Buyout managers typically target mature businesses with the aim of implementing changes to improve revenues and exit opportunities.
  • Typical investment type. Buyout funds generally make large investments (>$100m) to purchase controlling stakes in companies with the intention of improving the business and exiting at a higher multiple.
  • Value add operations. Buyout managers look to add value typically by improving revenue growth, optimising costs and efficiency, making leadership changes or using leverage. 
  • Exit strategies. Typical exits are by way of a strategic sale or an IPO.


What is a Buyout fund?

Buyout funds look to purchase controlling stakes in companies with the intention to improve the business and exit at a higher multiple. Target companies are usually mature businesses with established cash flows and hard assets.

Typically, up to 75% leverage used in transactions with company assets and future cash flow used as collateral, hence the alternative name “leveraged buyout”. See ‘Why “leveraged” buyout? for more on how this works.

A buyout manager’s ability to identify long term macroeconomic trends - as well as individual target companies - is key to strong performance. Valuation of each target company is carried out by incorporating comparable valuations, debt levels as well as the potential future exit value.

The main exit avenues for buyout funds are by way of a strategic sale or an IPO. See Private Equity Harvesting Stage for more.


What is a “minority buyout” fund?

“Minority buyout” funds follow a similar strategy to buyout funds, but only purchase minority stakes in target companies. Since they are not in full control of the company, they often require board seats to help guide the company’s growth from within. As such, they can be seen as a cross between a buyout and growth equity fund.


How do buyout managers add value?

Sourcing proprietary deals: Buyout managers will leverage their network of entrepreneurs and portfolio companies to source unique deals. The ability to source and construct complex deals is a competitive advantage for more experienced managers.

Revenue growth: Often referred to as “topline growth”, a buyout manager will use their controlling position to optimise pricing, enter new geographies and refocus product development.

Improving margins: Buyout managers often implement cost-optimisation programs, improve supply chain practices and eliminate redundant costs or assets. They can also optimise the capital structure of a business by increasing or decreasing leverage levels. 

Focusing on core activities: This involves strategic redirection - exiting non-core activities to focus on primary activities. Whether the changes affect product and service lines, geographic focus or otherwise, the aim is similar to above: to grow revenue and improve margins.

Enhancing management: Buyout managers can also leverage their networks to complement existing leadership - whether positioning a new CEO or simply building out the broader management team.

Exit planning: A buyout manager will advise portfolio companies on potential exit avenues through an IPO, strategic sale or secondary buyout.


Why “leveraged” buyout?

The term “leveraged buyout” has lost popularity over recent years, but the use of leverage is still a key driver of returns. It works like this:

  • At acquisition: If a deal is funded by a mixture of equity and debt - using the target company’s cash flow as collateral - then it lowers the cost at acquisition.
  • During ownership: Interest payments (from debt) lower the tax rate throughout ownership, while dividend payments (from equity) do not.
  • Overall, the cost of financing is reduced when a deal is funded with debt, which acts as a lever to increase returns - hence “leverage”.


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Important Information: Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance. Your capital is at risk. Please see


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