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Family firm succession: the management buy‐out and buy‐in routes

Louise Scholes (Centre for Management Buy‐out Research, Nottingham University Business School, Nottingham, UK)
Paul Westhead (Durham Business School, Durham University, Durham City, UK)
Andrew Burrows (Centre for Management Buy‐out Research, Nottingham University Business School, Nottingham, UK)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 22 February 2008




This exploratory study aims to provide fresh insights into the ownership transfer of private family firms through internal management buy‐out (MBO) and external management buy‐in (MBI) succession routes. The paper aims to explore if flows of information impact the succession planning process and if the nature of succession planning impacts the business sale negotiation process relating to family firms that select MBO/MBI succession routes.


Guided by insights from agency theory and theories relating to information asymmetries and negotiation behaviour six hypotheses were derived. Private family firms that had received venture capital and the MBO/I deals had been completed between 1994 and 2003 were identified. A structured survey was administered to 117 senior members of acquiring MBO/I management teams after the deal had been completed in several European countries. Non‐parametric chi‐square tests and Mann‐Whitney “U” tests were used to test the presented hypotheses.


Evidence highlights the importance of information sharing and that the family owner(s) may not always be in the strongest position. MBOs reported lower information asymmetry. Also, lower information asymmetry was reported when vendors and management were involved in succession planning. Internal managers with greater access to information were found to influence the negotiation process and determine who is more likely to benefit from the price to be paid for the firm. A mutually agreed price was less likely when management controlled information and when personal equity providers (PEP) were involved in the process supporting the interests of the MBO/I team.

Practical implications

Family firm owners need to plan for succession planning. Vendors of family firms need to leverage external professional advice when negotiating the sale of their ventures to ensure “family agendas” are protected.


This study has extended the conceptual work of Howorth et al. surrounding the succession of family firms through MBOs and MBIs. Rather than relying on case study evidence alone, cross‐sectional survey evidence was explored within a univariate statistical framework to explore gaps in the knowledge base relating to succession planning and business sale negotiation behaviour.



Scholes, L., Westhead, P. and Burrows, A. (2008), "Family firm succession: the management buy‐out and buy‐in routes", Journal of Small Business and Enterprise Development, Vol. 15 No. 1, pp. 8-30.



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

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