eli5: how does a company ‘buy themselves back’

Question

Say a large company bought out a smaller one. Then in a years time the smaller one bought them selves again, how does that work. Do the board gather round and chip in, do they have a constant IOU to the parent company until it’s all been paid, can the original owner pay it back off again?

In: 3

Answer 1

Let’s say LargeCo bought SmallCo for $100m a few years ago, and it’s not working out. The founder of SmallCo reaches a deal to buy back the company for $20m. He might simply have the $20m from the original sale, or he might have lined up additional investors to partner with him.