An interesting piece by Caroline Humer ran on the Reuters wire a few days ago titled U.S. Management-Led Buyouts Soar. What's most astounding is her statistic on U.S. management buyouts.

"So far this year, $74.7 billion has been announced in U.S. management buyouts compared with $9.2 billion last year, accounting for more than 9 percent of U.S. merger and acquisition deals, up from 1.2 percent in the year earlier period. That growth also outpaces the growth in U.S. private equity and M&A overall, up151 percent and 25 percent respectively this year."

Leveraged buyouts account for a significant percentage of today's M&A activity. Some of the LBO bidding groups include current management or significant individual shareholders like company founders. For target shareholders, LBOs (and in particular MBOs), create unique factors to consider when weighing whether to vote for or against a proposed deal.

One issue that has been causing investor consternation is the shortened payout period between buyout and monetization event. Historically, private equity buyers put in three to five years of hard work before selling the company or taking it public again. Recently, however, financial sponsors have sometimes paid themselves special dividends within months that allow them to continue to own the portfolio company using "house money." In such cases, shareholders wonder why the company couldn't remain public and allow the value to flow to public shareholders.

MBOs add an additional concern: that insiders who know the company best are somehow taking advantage of that knowledge to buy the company on the cheap. Again, shareholders wonder why incumbent management cannot do for them what it plans to do for the financial sponsors.

What are your thoughts on management-led buyouts? We welcome your comments.