THE full extent of the riches to be made from management buyouts emerged yesterday after new research showed that a chief executive on average pockets about £16 million from leading a £100 million-plus takeover of his company.

In the first study of its kind, research from the Centre for Management Buyout Research said that the average £100 million-plus UK leveraged buy-out yielded its investors a £293.3 million profit, representing a return of about 3.5 times the equity invested.

Serial private equity-backed deal-makers such as Rob Templeman — who ran Homebase for Permira, Halfords for CVC Capital partners and now heads Debenhams for CVC and Texas Pacific — have made tens of millions of pounds in windfalls from leading buyouts.

Yet the extent to which managers have made more than £10 million has surprised many in the private equity industry.

Tom Lamb, co-head of private equity and managing director UK of Barclays Private Equity, a co-sponsor of the research, said: “The average number is higher than I would have expected.

“But the rate of return will have been very variable, with some deals making huge amounts of money and others making virtually nothing, or losing money.”

The most successful deals include Permira’s buyout of Homebase, the DIY retailer, which yielded a £442 million profit on an equity investment of £95 million. Meanwhile, Inmarsat, the satellite group behind Thailand’s new tsunami early warning system, is on course to yield Apax and Permira a five-fold return, worth more than £300 million, on their joint investment.

The average £100 million-plus deal is valued at £331.3 million, implying an equity investment of about £110 million. About five senior managers typically will take a combined 17 per cent equity stake in the company, with the chief executive accounting for about one third of that.

This means that the management team would take £50 million of the £293.3 million made on the typical £100 million-plus deal. The private equity firm would usually take a further £59 million, with the rest of the money returned to its institutional investors, which include pension funds and banks.

André P. Jaeggi, a managing director of Adveq, a Zurich-based investor in private equity funds, said: “These returns are very impressive, even outstanding. We have lived through exceptional times, but no one knows how long it will last. It is also likely that, in some funds at least, the best investments have been sold but the worse ones remain.”

The research was based on 321 private equity-backed British businesses sold in the ten years to 2004.

David Giampaolo, chief executive of Pi Capital, an investment club counting bankers and private equity practitioners among its members, said: “It won’t look that good in the future.

“We have just had an amazing ten-year window, with only a couple of black years, but returns are coming down because the amount of money available for deals is higher and prices are now fuller.”

The research also revealed that the management team typically takes a 32.1 per cent stake in buyouts valued at between £10 million and £100 million. With deals below £10 million, they take a 51 per cent stake.

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