Article at a glance:

The alchemy of LBOs

In the space of two years, LBO companies bought assets worth almost $20 billion 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.

The take-away

LBO-owned chemicals assets have delivered much higher returns for shareholders than have assets owned by traditional chemicals companies. And, contrary to a 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?