Bust-Up Takeover

AAA

DEFINITION of 'Bust-Up Takeover'

A corporate buyout in which the acquirer sells off a piece of the company in order to pay down some of the debt used to finance the initial buyout. The acquirer buys the company by taking on debt and then repays it with the target's assets once it has control. This is a strategic method used in cases where the target company has undervalued assets that the acquirer seeks to exploit.

INVESTOPEDIA EXPLAINS 'Bust-Up Takeover'

This style of buyout, as with any leveraged buyout, involves heavy analysis on behalf of the acquirer to adequately value the target company's assets and to make sure that the return on those assets pays for the added cost of debt.

If the target company has significantly undervalued assets and the acquirer has little cash (and so needs debt to fund the purchase), this strategy could be implemented to successfully unlock value.

RELATED TERMS
  1. Golden Parachute

    Substantial benefits given to a top executive (or top executives) ...
  2. Sleeping Beauty

    A company that is considered prime for takeover, but has not ...
  3. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
  4. Buy, Strip And Flip

    When a private equity firm buys out a target firm (usually with ...
  5. Acquisition Premium

    The difference between the estimated real value of a company ...
  6. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
RELATED FAQS
  1. What is the difference between a merger and a takeover?

    In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  2. Entrepreneurship

    Finding The Best Buyer For Your Small Business

    Learn more about the process business owners go through to seal a merger or acquisition deal.
  3. Mutual Funds & ETFs

    Could Your Company Be A Target For Activist Investors?

    Find out why certain companies are targeted by these investors.
  4. Investing

    Use Breakup Value To Find Undervalued Companies

    Find out a company's worth if it were sold in pieces - it may be more than you think.
  5. Fundamental Analysis

    What is Gearing?

    Gearing, also called leverage, is the degree to which a company’s operations are funded by lenders versus shareholders.
  6. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  7. Stock Analysis

    Will Kraft-Heinz Be a Winner?

    Kraft and Heinz are now one. This should present a profitable long-term investment opportunity, but isn't likely to be smooth sailing at first.
  8. Investing

    WhatsApp: The Best Facebook Purchase Ever?

    WhatsApp is Facebook's largest acquisition to date. What makes it worth the major price tag?
  9. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  10. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center