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The stock market is home to a wide variety of companies, from small startups to multinational corporations. Individuals and institutions flock to the market to buy and sell stocks every day. If you have had any experience with the stock market, you may have seen certain companies disappear from the market entirely, or their stock prices suddenly jumping and staying at the same level for a period of time.
Such occurrences happen when one company decides to initiate a stock buyout of another listed company. This can be for many different reasons, maybe the public company is not really benefiting from being listed on an exchange and all the fees and regulations that come with it, or maybe the management of the business can no longer properly run the company and an overhaul is due.
One way or another, buyouts are a crucial part of a functioning stock market and larger players often buyout smaller companies to expand into new markets or to bolster their presence on existing markets.
If you are a beginner trader and would like to know more about how buyouts work and how they affect the stock market, this Investfox guide is for you.
Stock buyouts, also known as mergers and acquisitions (M&A), involve one company acquiring another, which often leads to changes in the ownership structure and stock prices of the involved companies.
This is one of the most important pieces of news that can emerge regarding both the acquiring and the target companies. Here’s how stock buyouts typically work in steps:
When the news of a stock buyout reaches the market and if the acquiring company is also publicly listed, two things tend to happen:
Such occurrences are common on the stock market when the buyout happens between two publicly listed companies. However, private companies, such as venture capital firms can also buyout public companies, which only affects the target company’s stock price.
To better understand how stock buyouts affect the target company’s stock price, we can look at the example of Maxar Technologies, a spatial technology company that was acquired by the private equity firm Advent International, which was finalized on December 16, 2022.
Here’s how the deal affected MAXR stock, which is now delisted from the Nasdaq:
As we can see, the stock price shot up at the news in December and the stock was officially removed from the market in May 2023. The chart also shows that Advent International paid roughly double the going stock price to acquire Maxar Technologies.
Stock buyouts, or mergers and acquisitions, involve one company purchasing another. It begins with an announcement, due diligence, negotiation, shareholder and regulatory approvals, closing the deal, and integrating the acquired company, affecting stock prices.
During a buyout, the stock of the target company typically experiences a price increase, approaching the acquisition price. The stock of the acquiring company may initially drop due to integration concerns.
Yes, stock buyouts are regulated by securities and antitrust authorities in various jurisdictions. Regulatory oversight ensures compliance with laws and regulations related to mergers and acquisitions, including antitrust and shareholder protection rules.