Management Buy-Outs Revisited

Overview: The article states that as slow economic growth has caused many large organizations to rethink their operational goals, many corporations have been selling off, spinning out, or winding down underperforming or non-core businesses. This trend has generated more opportunities for professional management teams to become business owners. In the last weeks of December 2002 over a dozen transactions were completed in which a corporation or entrepreneur sold a business to its management team. With over 200 management buy-outs in 2002 alone, the MBO is back. Naturally, investors pursue investment opportunities that are likely to generate high rates of return relative to the risks involved, thus they are likely to target traditional businesses with solid fundamentals. An ideal transaction would be characterized by cash on the balance sheet, attractive purchase price, etc. Middle-market management buyouts typically use the private equity markets to finance the transaction. Private equity or buyout firms typically provide the equity portion and banks, financial institutions or insurance companies provide the debt. In conclusion, the structure must provide new equity investors with an acceptable rate of return and give the acquired company enough financial flexibility to pursue its growth objectives and service debt. It is important that the capital structure fully considers the interest of all parties concerned, including the employees, selling shareholders, and the management and perhaps most importantly, that the structure is in the best interest of the business itself.

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Format: PDF | Size: 42KB | Date: Feb 2003 | Pages: 2