What Is Takeout?
In the context of finance, the term takeout can refer to:
- A long-term loan that replaces another loan, often a short-term one.
- A slang term for the purchase of a company via an acquisition, merger, or buyout, thus taking the target company out of play.
- Takeout can refer to a loan that replaces another loan or, as a slang term, to the purchase of a company via an acquisition or buyout.
- A takeout loan, which is quite common in property development, is long-term financing that the lender promises to provide at a particular date or when particular criteria for completion of a project are met.
- A takeout acquisition refers to a company being taken out of play, which occurs when the deal has been finalized.
Understanding Takeout Loans
Takeout is a term that has several uses in the financial industry, but the two main uses for this term are as a type of financing or the purchase of a company.
A takeout loan is a method of financing whereby a loan that is procured later is used to replace the initial loan. More specifically, a takeout loan, or takeout financing, is long-term financing that the lender promises to provide at a particular date or when particular criteria for completion of a project are met.
Takeout loans are commonly used in property development. A developer might secure a short-term loan to scrap an existing structure and pay a crew to build a new one. Once the new structure is in place or a significant portion of it is finished, the developer might secure longer term financing to pay off the original loan.
A takeout lender is a financial institution that provides long-term mortgage loans to replace short-term financing used to fund the purchase of land or the development and construction of large buildings like commercial real estate.
These lenders offer long-term financing and lower interest rates in exchange for mortgage payments, a portion of rent payments, and capital gains if the property is sold.
A take-out commitment is a written guaranty by a lender to provide permanent financing to replace a short term loan at a specified future date, if the project has reached a certain stage.
Takeout by Acquisition
Takeout, as a colloquial term, can refer to the purchase of a company, be it through an acquisition, merger, or other form of buyout. The nature of the takeover does not matter for it to be a takeout, and the term is used in all contexts. Thus, a takeout can refer to a hostile takeover, a friendly merger, or a leveraged or management buyout. What matters is that the target company is "taken out of play."
A company is said to be "in play" if it is likely to be acquired in the future, or currently has bids from purchasers. A takeout thus refers to the company being taken out of play, which occurs when the acquisition has been finalized (or if the deal fails to materialize).