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Article
Publication date: 1 January 1990

Peng S. Chan and Ravi R. Chinta

Consider the case of Procter and Gamble (P&G), when it ships carloads combining diapers and other paper products. It saves transportation costs (about 10% of sales) relative to a…

Abstract

Consider the case of Procter and Gamble (P&G), when it ships carloads combining diapers and other paper products. It saves transportation costs (about 10% of sales) relative to a firm that sells only diapers. This is one example of synergies among divisions that seem to explain the superior performance of companies like P&G. Examples of other related companies are General Foods, General Mills, Pillsbury, Dupont, 3M, Westinghouse etc., each of which try to exploit some form of synergy or other. But at the same time, managers also find that there are several conglomerate firms comprised of unrelated business units which are also performing well. Examples of conglomerates in this category include ITT, Rockwell International, Dart Industries, Signal Companies, United Technologies, Gulf and Western Industries, Tenneco, Textron, USX etc. An erudite manager is thus faced with a dilemma. Are synergies real? If they exist, why are they not ubiquitous? Why and when is unrelated growth pattern an attractive alternative?

Details

Management Research News, vol. 13 no. 1
Type: Research Article
ISSN: 0140-9174

Article
Publication date: 6 February 2017

Alexander D.F. Lahmann, Wiebke Stranz and Vivek K. Velamuri

The purpose of this paper is to analyze specific levers of value creation in small and mid-size private equity deals. Private equity firms add value through various types of value…

3418

Abstract

Purpose

The purpose of this paper is to analyze specific levers of value creation in small and mid-size private equity deals. Private equity firms add value through various types of value creation measures in their portfolio firms to achieve abnormal returns. Established literature has shown that value creation measures differ across portfolio firms due to the different development stages of the firm and different buy-out types. Despite the fact that the majority of deals belongs to the small and mid-size segment, prior studies mostly analyzed large private equity buy-outs or mixed samples.

Design/methodology/approach

To explore value generation measures in small and mid-size buy-outs, a single case study format was applied studying the carve-out of QUNDIS from Siemens Building Technologie by CAPCELLENCE as an exceptional successfully private equity deal within this segment.

Findings

The analysis shows that operational and governance improvements are common value creation measures in all buy-outs. The results suggest a lower leverage for smaller private equity deals indicating that financial engineering is less important. Furthermore, in small and mid-size deals, the strategic focus is growth contrary to downsizing and refocusing in large buy-outs.

Research limitations/implications

Results of a single case study should be generalized cautiously, as they are perceived as less robust compared to empirical methods or multiple case studies. However, this method is appropriate for explorative studies.

Originality/value

The paper is original in exploring certain value creation measures applied by private equity firms in their portfolio companies in the small and mid-size segment.

Details

Qualitative Research in Financial Markets, vol. 9 no. 1
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 1 March 1990

John W. Hunt

As a result of the many changes which have taken place in the fieldof management development since the 1960s, a scenario presenting theprobable appearance of the discipline in the…

Abstract

As a result of the many changes which have taken place in the field of management development since the 1960s, a scenario presenting the probable appearance of the discipline in the year 2000 is presented, with evidence from the past and present to support it.

Details

Journal of Management Development, vol. 9 no. 3
Type: Research Article
ISSN: 0262-1711

Keywords

Article
Publication date: 1 March 1987

R.S. Thompson and M. Wright

In both the United States and Europe there has been a spectacular growth in the number and importance of management buy‐outs since the late 1970s. The typical characteristics of…

Abstract

In both the United States and Europe there has been a spectacular growth in the number and importance of management buy‐outs since the late 1970s. The typical characteristics of these deals differ somewhat on either side of the Atlantic in ways which are outlined below. However, in each environment the term “buy‐out” refers essentially to the transfer of ownership of the assets of an existing firm — which may itself be an independent entity or a wholly‐owned subsidiary or division — to a new and especially established group of equity holders which intends to keep at least some of those assets in their former use. In the US buy‐outs have often involved very large asset transfers, indeed multi‐billion dollar deals have been quite frequent. The transaction is typically financed by a limited subscription of equity from specialist venture capitalists and perhaps from the firm's management, together with a very large input of debt capital. The latter has often been in the form of high coupon (so called “junk”) bonds. The characteristically high ratio of debt to equity in buy‐out finance has given rise to their American description as leveraged buy‐outs.

Details

Journal of Economic Studies, vol. 14 no. 3
Type: Research Article
ISSN: 0144-3585

Article
Publication date: 1 January 1990

Joseph Pope

Provides a personal view of the future of the UK manufacturingsector in a time of social and technological change. Discussescommunication between industry and society, the power…

Abstract

Provides a personal view of the future of the UK manufacturing sector in a time of social and technological change. Discusses communication between industry and society, the power of capital, industry and unemployment, the need for stability within organizations, and the aspirations of individuals within organizations. Summarizes that industry problems should be viewed in a wider context, both socially and internationally, to ensure the right priorities are selected.

Details

Work Study, vol. 39 no. 1
Type: Research Article
ISSN: 0043-8022

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Article
Publication date: 1 October 2006

Anne‐Laure Le Nadant and Frédéric Perdreau

Seeks to investigate whether the financial characteristics of leveraged buy‐out (LBO) targets differ from those of firms that have not undergone an LBO before the deal…

1519

Abstract

Purpose

Seeks to investigate whether the financial characteristics of leveraged buy‐out (LBO) targets differ from those of firms that have not undergone an LBO before the deal. Specifically, to examine the free cash flows (FCFs), income taxes, capital intensity, business risk, profitability, financial structure and asset characteristics of 175 French LBO targets that are mainly privately held and rather small companies, between 1996 and 2002.

Design/methodology/approach

Predictions derive from the FCF and the tax savings hypotheses, and from the criteria used by LBO firms in their acquisition rationale. Tests were conducted of differences between LBO targets and control companies and logit regressions run.

Findings

Results show that LBO targets are less indebted, have more liquid (financial) assets, and exhibit higher business risk than their industry counterparts. A distinction between LOBs according to the vendor type shows that independent companies are smaller, more profitable, and have higher tax income levels, whereas former subsidiaries or divisions of groups are less profitable, and have more financial assets than their industry counterparts. Logit regressions suggest that LBOs of smaller independent targets that LBOs of smaller independent targets fit fiscal and succession motives, whereas LBOs of former subsidiaries address management issues.

Research limitations/implications

The likelihood of an LBO is related to accounting ratios only. Further research could include other financial or strategic variables in the models.

Practical implications

The unexpected risky profile of targets has implications for LBO firms.

Originality/value

A new result is the risky profile of LBO targets prior to the deal. This could help to explain the underperformance puzzle after the deal already emphasized on the French market.

Details

Review of Accounting and Finance, vol. 5 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 January 1991

R.S. Thompson

It is now curious to recall that ten years ago management buy‐outs were infrequent and largely ignored by those not directly involved, (Arnfield et.al., 1981). During the…

Abstract

It is now curious to recall that ten years ago management buy‐outs were infrequent and largely ignored by those not directly involved, (Arnfield et.al., 1981). During the subsequent decade a previously unrecognised oddity has become not merely commonplace but a major force in restructuring the private sector and in privatising public services. In 1989 there were over 500 recorded management buy‐outs (MBO's) and associated deals to a total value of £7.5 billion. In the same year these transactions accounted for 22% of all mergers and acquisitions by value and almost one third by volume. Furthermore, in the latter half of the 1980s the MBO spread to Europe and now appears poised to become a major instrument in dismantling the state industries of Eastern Europe.

Details

Management Research News, vol. 14 no. 1/2
Type: Research Article
ISSN: 0140-9174

Abstract

Details

Strategic Business Models: Idealism and Realism in Strategy
Type: Book
ISBN: 978-1-78756-709-2

Article
Publication date: 26 September 2008

Steve Wood

The financial restructuring of the US department store industry is commonly interpreted as a time of corporate excess, value‐destruction and ultimately collapse. The purpose of…

Abstract

Purpose

The financial restructuring of the US department store industry is commonly interpreted as a time of corporate excess, value‐destruction and ultimately collapse. The purpose of this paper is to re‐analyse these events using qualitative methods to understand the background to the leveraged transactions and to review the implications that their failure had for the longer term strategy and structure of the US department store industry.

Design/methodology/approach

The research is based on two extensive periods of fieldwork in the US when the author interviewed (n=28) many of the protagonists of the 1980s restructuring period and those who inherited the management of the bankrupt businesses in the 1990s. By adopting a qualitative perspective, we are accessing social and human perspectives of these developments as well as their wider effects.

Findings

The leveraged transactions were conceptually an appropriate attempt to centralise the structure of the industry but their execution was not possible under such extreme financial distress. However, bankruptcy protection provided the environmental conditions to realise the benefits of more efficient strategic and subsequent wide‐ranging structural change.

Originality/value

This research differs from economistic readings of the period that analyse changes in market value of the constituent firms and the more reactionary journalistic accounts. The paper re‐casts the failed financial restructuring in a new light, underlining the regenerative effects of Chapter 11 Bankruptcy Protection in promoting firm revival, alongside visionary leadership.

Details

Journal of Management History, vol. 14 no. 4
Type: Research Article
ISSN: 1751-1348

Keywords

Article
Publication date: 22 February 2008

Louise Scholes, Paul Westhead and Andrew Burrows

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…

4300

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Journal of Small Business and Enterprise Development, vol. 15 no. 1
Type: Research Article
ISSN: 1462-6004

Keywords

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