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An Update on Management Buyouts Brought to you by The CPA Report January 2002 (SmartPros) The recent peak in management buyout activity (MBO) is in marked contrast to most of the past year. Even though buyout firms participated in almost 300 deals worth approximately $40 billion, that total represents a big drop from the $60 billion worth of deals the year before. As a result, about $200 billion in private equity are sitting on the sidelines. This money can be, and should be, invested in management buyouts of companies, both publicly held and closely held. As a venture capitalist with fifteen years of experience under his belt, Rick Rickertsen has made a career out of helping great managers achieve professional fulfillment. As Chief Operating Officer of the Washington, D.C. based venture capital firm of Thayer Capital Partners, Rickertsen led the firm’s most successful investment: The management buyout of SAGA software, which is one of the case studies used in his new book, Buyout: The Insider’s Guide to Buying Your Own Company.
In an interview with The CPA Report, Rickertsen said fewer buyouts are taking place because buyers and sellers have different expectations of value.
"It’s an interesting economic time right now," he said. "The main point right now is that buyers are interested in buying companies much more cheaply than they were a year or a year and a half ago, and sellers are still holding on to those expectations of 18 months ago. You’ve got a spread, a gap between the buyers and sellers. Now I think that sellers are being worn down in this environment, and I actually think you’re going to see a lot of management buy out activity and going private activity in the next 12 months." Rickertsen pointed out that if managers have a good record of success they can complete a management buyout without a lot of personal capital.
"There is an enormous amount of capital out there. All you need is a good thoughtful plan and an ability to execute that plan," said Rickertsen. He advises that managers interested in a MBO address at least five questions at the outset.
Rickertsen added that "the management talent has never been more important in the equation. I strongly believe there is enormous amount of capital, and the limiting factor is management talent: good, aggressive managers. And good, aggressive managers with a successful track record can do extremely well in this environment." The entire interview with Rick Rickertsen is available through the The CPA Report segment, Auditing Practice: Are You Management Buyout Material? Access the multi-media presentation and transcript free of charge, or earn NASBA-approved CPE credit for the one-hour segment.
For more information on The CPA Report, click here.
2002 SmartPros. All rights reserved.
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