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The alchemy of LBOs
29/05/2001. Source:The McKinsey Quarterly. Paul A. Butler
 How can investment bankers achieve better results in chemicals companies than engineers and chemists do? No, it isn't black magic. Here, McKinsey looks at the market issues.
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In the space of two years, LBO companies bought assets worth almost $20bn from chemicals companies seeking to improve their notoriously sluggish returns by running more focused businesses. Such intense buying activity has prompted accusations from many in the chemicals industry that these new owners are no more than financial magicians who turn solid balance sheets into smoke and mirrors and, worse, recklessly slash and burn businesses in a quest for quick returns. Analysis of some financial deals shows that the truth is quite different. |
LBO-owned chemicals assets have delivered much higher returns for shareholders than have assets owned by traditional chemicals companies. And, contrary to widespread belief, LBO owners create much more value through operational improvements than through the actual financial transaction. Time, perhaps, for chemicals companies to apply an LBO approach to their own underperforming businesses?
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Extracted from McKinsey Quarterly, 2001 Number 2
The McKinsey Quarterly, a journal in print and online from McKinsey & Company, featuring the latest thinking on business strategy, finance and management.
Copyright © 1992-2001 McKinsey & Company, Inc.
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