Meter-Matic Limited
1) Explain and critically assess how Meter-matic measures up as a candidate for a leveraged buy-out? Include information about economic references from the graphs shown in the text. What are the implications of the bond rate declining and the rand becoming stronger against the US dollar?
A MBO of Meter-matic Limited (Meter-matic) was considered by the CEO his management team for mainly strategic reasons. Meter-matic did not fit into SAFREN’s strategic vision (according to Piet Malan and his management team) and was not seen as a core activity by its parent company
- Meter-matic was too small to warrant much attention within the SAFRAN group.
- Its products required a high level of technical skill and management was becoming increasingly indispensable to the operations (all of which SAFREN perceived as a weakness).
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,
A MBO of Meter-matic Limited (Meter-matic) was considered by the CEO his management team for mainly strategic reasons. Meter-matic did not fit into SAFREN’s strategic vision (according to Piet Malan and his management team) and was not seen as a core activity by its parent company
- Meter-matic was too small to warrant much attention within the SAFRAN group.
- Its products required a high level of technical skill and management was becoming increasingly indispensable to the operations (all of which SAFREN perceived as a weakness).
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,
References: Sources (references): Table 1 Characteristics of a successful MBO candidate Wikipedia http://www.12manage.com/methods_leveraged_buy-out_nl.html http://faculty.darden.virginia.edu/brunerb/Bruner_PDF/Management%20Buyouts%20and%20Managerial%20Ethics.pdf http://www.springerlink.com/content/x44141133177815p/ http://en.wikipedia.org/wiki/Leveraged_buyout#Management_buyouts http://cmr.berkeley.edu/search/articleDetail.aspx?article=4618