Study highlights the benefits from MBOs

A MANAGEMENT buyout is the acquisition of an existing business by an alliance between management and private equity financiers.

More than 50 MBOs have occurred in Australia between 1987 and 2002. The Australian Venture Capital Association’s study of 42 MBOs The Impact of Management Buyouts on the Economic Performance of Australian SMEs found:

MBO companies achieved superior earnings growth compared with ASX 200 companies. Between 1996 and 2001, ASX 200 companies achieved average earnings before interest and tax growth of 20 per cent. By contrast, 70 per cent of the MBOs achieved EBIT growth greater than 20 per cent and 40 per cent achieved EBIT growth of more than 100 per cent;  70 per cent of MBOs achieved immediate growth in turnover;  60 per cent of MBOs expanded their product and service range; Virtually every MBO business improved its governance and management reporting processes;  80 per cent of the MBOs improved their cash flow and financial controls;  More than half the MBOs spent more on training new and existing staff;  The MBO often acted as a catalyst for innovation, helped by injections of fresh capital;  A key driver of the success of MBOs is the motivation and empowerment provided to operational managers through ownership;  The interests of directors, management and share-holders are aligned through common ownership; and  Management and employees satisfaction levels increased.

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