Takeout: What it is, How it Works, Acquisition

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Adam Hayes
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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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Updated May 27, 2022
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What Is Takeout?

In the context of finance, the term takeout can refer to:

  1. A long-term loan that replaces another loan, often a short-term one.
  2. A slang term for the purchase of a company via an acquisition, merger, or buyout, thus taking the target company out of play.

Key Takeaways

  • 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.

Takeout Lending

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).

The investment bank that is advising the selling company might offer staple financing to potential bidders. The bank will underwrite the funds necessary to accquire the company and hopes to spur more bidding.

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