The Message Behind the Buyouts
FYI: From the editor
The conditions for management buyouts have never been more favorable than they are today
Considering that it's been less than a year since the sale of Inc. by its founder, I'd be lying if I told you that the subject of this month's cover story -- management buyouts -- isn't near and dear to my heart. But under the circumstances, that's probably all I should say.
In any case, I couldn't help noticing an advance copy of a book called Buyout: The Insider's Guide to Buying Your Own Company on my desk a few months ago. As it happened, I was heading out of town that day and needed something to read on the plane.
I doubt that many people would find such a book ideal for airplane reading, but I was enthralled by it. The author, buyout expert Rick Rickertsen, writes in clear, authoritative prose and -- unlike most deal makers -- has the ability to demystify his area of expertise to people outside the world of investment banking. I called him as soon as I landed and expressed my interest in teaming him up with one of our writers to do an article for Inc. He liked the idea. As we spoke I pointed out that while his book is directed at managers of large corporations whose founders have long since left, most Inc. readers are owners or top managers of companies at which the founder is still present.
"That changes everything," Rickertsen said.
"Right," I said, "and we'll want to focus on those types of situations."
The result is the article by Paul B. Brown, " Buyout." In it Brown and Rickertsen make a compelling argument that the conditions for management buyouts have never been more favorable than they are today. Valuations are down; despite the turbulence of capital markets, there's plenty of investment capital available; and skilled, experienced managers are in short supply.
And yet I am most struck by Rickertsen's observation that buyout firms like his would be out of business if American companies just figured out how to harness the power of equity in compensating senior management.
As Norm Brodsky reminds us, there are no bad predictions, only bad timing. After all, he's the guy who told us first in 1996, then again in 1999, that a recession was on the way.
It looks now as though his prediction may finally be fulfilled, although we won't know for sure until a recession is already upon us. Meanwhile, those of you who heeded Brodsky's advice back in January 1999 (see " How to Profit in the Coming Recession") are glad you did. "Your crystal-ball insights are coming about sooner rather than later," one reader wrote in a recent E-mail message to the columnist, "and I'm thankful that I took your preemptive thought processes to heart. At the time, my management team all got copies of the article. We collectively pulled our heads out of the sand. What-ifs were discussed, and we began taking the pulse of the industry differently. We were able to hone our observation skills, in turn enhancing our preparations for what we are facing today. Just wanted to say thanks."
If you didn't take Brodsky's advice back then, you have another chance this month, as the veteran entrepreneur weighs in with " How To Grow In a Soft Economy," a timely but counterintuitive column on dealing with economic downturns. There are certain areas of your business, he argues, in which it now pays to be more aggressive than ever.
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