What is a tech buyout worth?

Ever wondered why Facebook bought WhatsApp? Or, why Microsoft bought Nokia? You must have. It’s borderline impossible to keep track and yet not wonder why these big budget buyouts take place when they do. In layman terms, there’s not much change. It’s just a big multinational company outgunning its competitor, right? Well, almost but not quite. In strictly technical terms, these tech buyouts are hugely significant.

What is a tech buyout?

By definition, a buyout is a financial investment transaction where majority of the share of a company is acquired by a bigger fish in the pool. And, since one company acquires the rights of another, buyout is also used alongside acquisition.
But, what do these buyouts mean from the technical point of view? Do the companies that are bought, completely dissolve? Or, do they still work under their revised board of committee?

Types of buyouts

To understand that, we need to know the types of buyouts. Essentially, there are only two types of buyouts – Management Buyouts (MBOs) and Leveraged Buyouts (LBOs). For MBOs, it is often a complete or a significant buying of the shares by the managers of the company. In case of LBOs, the buyout takes place due to borrowing of a huge sum of money. The money is used as collateral for the debt. LBOs are generally a risky business, but, can pay off huge dividends, if they do.
These buyouts are critical in the sense that they change the market scenario. In most cases, buying out a young and emerging company reduces competition. Much lesser reasons to worry about, if you own a big company and you buy out a young, emerging one who could be a potential rival in the future. Moreover, the current market situation is seeing a wind of change lately. And, right now, an expansion is taking place across all sectors of the industries. Companies are getting out of their comfort zones and trying their hands on new services. This ushers in a new age where the fine division between sectors is increasingly getting shorter. The businesses need expansion, and so does the industry.
These buyouts also mean that the company that bought its competitor will be able to handle bigger questions and relieve the bigger clients. For example, when Verizon acquired Yahoo, they planned on using Yahoo’s renowned ad technology to benefit their advertisement ventures in the future. Or, when Apple realized they were having firm competition in online shopping from other companies, they acquired Whole Foods which gave them a chance to venture into the food market and expand their business.
In hindsight, tech buyouts have the potential to drastically change the industry equations. These deals are planned moves. But, they take place without prior notice to the rivals to add the element of surprise and when they are done, they have the ability to shaken a few industry giants, if done thoughtfully.