This analysis of the LBO of Amtek Engineering Limited (“Amtek”) in 2007 is noteworthy, primarily because it is one of the more recent example in Singapore of a leverage buyout of a public company involving private equity players , and it showcases a example of how private equity firms typically restructure and streamline the acquired company, subsequently executing their exit strategy via an initial public offering. In this paper, I will first provide a background on the leverage buyout and privatization of Amtek in 2007. This will be followed by an elaboration on the strategic, operational and organizational restructuring measures implemented by the new owners. Lastly, we ...view middle of the document...
It was obvious that it was a well-planned buyout, as each partner, individually, did not cross the 30% shareholdings to have to make a mandatory offer, but yet over the past few months had accumulated enough shareholdings to form a collective consortium for the takeover of the remaining 51% shareholdings. The consortium offered S$1.10 per share to shareholders, a 38% premium over the past 6 months volume-weighted average price and a 10% premium to the last transacted closing price, valuing Amtek at S$552 million. The takeover was wholly financed by a bridge financing loan from Standard Chartered Bank.
As the offer was deemed to be fair, and given that Amtek had been a stock counter with persistently low trading liquidity over the years, this presented a good opportunity for shareholders to exit their investments. Without much fanfare or resistance by shareholders, the consortium acquired 97.3% of the company in two months, setting the stage for a privatisation and delisting of Amtek from the Singapore Stock Exchange on 31 July 2007.
Post-acquisition, the private equity firms replaced the entire management team and implemented a number of operational, strategic and organisational changes. Two seasoned precision engineering industry professionals Daniel Yeong and Sheila Ng were appointed the company’s CEO and CFO, respectively, to drive the company’s growth.
A slew of restructuring initiatives were put in place:
(i) Expanding capabilities
From offering primarily metal stamping services, Amtek expanded its capabilities into end solutions by offering industrial design services. This was an astute move to unlock the potential of each of Amtek’s existing business units and aggregating their standalone capabilities into a reference point for a diversified customer base. As can be seen in Exhibit 1, it is clear that the expansion of capabilities resulted in a diversification of revenue streams from 2008 onwards.
(ii) Streamlining activities to offer one-stop manufacturing solutions
Organisational changes were implemented and reporting structures were streamlined to integrate Amtek’s key functions and remove any informational silos within the organisation. The reorganisation of its reporting structure to a matrix organisation allowed for clearer accountabilities, communication lines and coordination between its global facilities and offices.
(iii) Enhancing operational and financial flexibility and discipline
A deliberate shift to a greater portion of contract labour allowed Amtek to improve its operational flexibility. It also moved towards a compensation structure emphasising variable compensation for executives across the organisation, bring down overall salary costs.
(iv) Increased presence in growing Asian markets
Amtek re-aligned its focus, service offerings and manufacturing footprint in Asia. Amtek’s revenues from its facilities in Asia grew from 78.6% in FY08 to 88.7% in FY10.