What is a Strategic Buyout?
A strategic buyout is a merger wherein one company acquires another based on the belief that the synergy of their combined operational capabilities will generate higher profits than if the two had remained independent.
How Does a Strategic Buyout Work?
In many cases, the operating abilities of one company will complement those of an acquiring company in such a way that, if combined, the operational capacity of the two could generate substantially higher profits. The acquiring company will purchase the target company, even at an otherwise irrational price, provided that the acquiring company will increase profit potential.
Why Does a Strategic Buyout Matter?
Strategic buyouts are as beneficial for the target company as for the acquiring party because both enjoy the higher profit realized from combined operations and economies of scale.