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May 14, 2007 02:00 AM

Private equity groups can offer hope to castoffs

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    The rubber industry, cyclical in its own right, also is subject to broader business trends. That's true today as investment firms and funds are snapping up companies in this industry, both manufacturers and suppliers, at a rapid pace.

    The business world is in a period when private equity outfits are fat with cash and looking for a place to park their money. On face value it might seem the slow-growth rubber industry wouldn't have much allure. The reality is a little different.

    Struggling rubber companies-particularly in the automotive segment-often are viewed as undervalued by big-money investors. Additionally, the trend of slicing off any piece of the corporation that isn't ``core'' offers bargains to investment houses, which can devote more attention to a typically neglected business, thereby making it attractive someday when the time is right to sell.

    Is this good for the acquired companies and their employees? It depends.

    If a rubber product maker or supplier is broken up and sold off piecemeal, it obviously isn't a positive development for the original entity. If the new investors come in with a flawed plan, or are hands-on managers but naive to the ways of the rubber business, that can spell disaster.

    However, when investors set benchmarks and then let the professionals-or new but qualified managers-do their jobs, the potential for success exists. In many cases it still is a gamble, but there is risk in all investment.

    For the employees involved in an investor buyout, the risks are just as high, if not higher. A quick way to reduce overhead is to cut staff. It's the rare acquisition that doesn't result in some payroll reduction.

    If the operation's management is involved in the buyout, that might help limit staff cuts as well as strengthen the future of the business because they have a personal stake in its success.

    Ultimately, logically, the investor group will sell the business to obtain its return. And if things work out, the company may again achieve that glorious status required for survival-to be a core business.

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    Rubber News wants to hear from its readers. If you want to express your opinion on a story or issue, email your letter to Editor Bruce Meyer at [email protected].

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