Bought-out Deals

Bought-out Deals

Meaning

A method for marketing of securities of a body corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor is known as bought-out deals .

Features

1.     Parties: There are three parties involved in the bought-out deals. They are promoters of the company sponsors and co-sponsors who are generally merchant bankers and investors.

2.     Outright Sale: Under this arrangement, there is an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor.

3.     Syndicate: Sponsor forms a syndicate with other merchant bankers for meeting the resource requirements and for distributing the risk.

4.     Sale price: The sale price is finalized through negotiations between the issuing company and the purchaser, the sale being influenced by such factors as project evaluation, promoters image and reputation, current market sentiments, prospects of off-loading these shares at a future date, etc.

5.     Listing: The investor-sponsor make a profit, when at a future date, the shares get listed and higher prices prevail. Listing generally takes place at a time when the company is performing well in terms of higher profits and larger cash generations from projects.

6.     OTCEI: Sale of these share at Over-the-Counter Exchange of India (OTCEI) or at a recognized stock exchanges, the time of listing these securities and off-loading them simultaneously are being generally decided in advance.