The management team made up their conclusion by the fact that Meter-matic had received no attention at a strategic retreat and several of the SAFRAN board members clearly knew very little about the division. Capital expenditure was rarely allocated to the division. A concern is that due the lack of strategic fit Meter-matic was not able to take advantage of investment opportunities of which: -Industry outlook for the foreseeable future in South Africa was good by the nature of the product, due to opportunities by governmental initiatives. It was apparent that potential existed to market the company’s technology to other fluid-handling industries. -Meter-matic’s own designed products had received considerable interest from overseas suppliers and there was a strong possibility of exports in this area. SAFREN had insufficient resources to actively market and support technology exports. Besides the strategic arguments the CEO, Piet Malan felt that he might be better able to retain his senior management team if they felt they “owned” a significant share of their company and raised additional capital for growth. His management team, especially the sales manager, was very keen to take over the management control of Meter-matic. The following features make Meter-matic more attractive as a leverage buyout candidate [reference Wikipedia, 12manage.com]: Parent company
-SAFREN may be willing to cooperate with the MBO as Meter-matic is not one of their core competencies. -Meter-matic is a stand-alone entity and could be separated from the parent company. Management
-Metermatic has a competent management team with extensive experience in the business/industry and with an acknowledged track record. The management team was committed to a MBO as it wanted to gain independence and autonomy, a chance to influence the strategy of the company and the prospect of a capital gain. Market and market position
-The market of fluid control systems for the petrochemical industry was stable and mature as the industry provided a basic non-substitutable product for the foreseeable future and the need for fluid control systems existed due to the issue of “shrinkage” (abnormally high in South Africa). -Metermatic has high technology, system-orientated, fluid control products, the company operates within a defined market. The business appeared to have significant growth prospects, both with the petrochemical industry and for other applications (e.g. water reticulation, diaries, etc.), and there was the possibility of significant export revenue being realized. -Dominant market share in its niche of the market, the installation of new fluid control systems in the petrochemical industry. A differentiator was its ability to design a customized, integrated turnkey system which addressed the specific needs of the client. Strong relationships with several of the major oil companies. Financial
-Profitable history (last 3 years relative high EVA) and proven record. It has a multi-year history of stable and recurring cash flows. -The purchase price of R100 million is largely supported by assets of high quality. -Low capital...