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Article
Publication date: 1 December 1998

Yehuda Baruch and Sally Woodward

An investigation was undertaken into the important, yet neglected area of the people aspects of management buyout (MBO/MBI). Since prior work suggests that management is, by far…

2096

Abstract

An investigation was undertaken into the important, yet neglected area of the people aspects of management buyout (MBO/MBI). Since prior work suggests that management is, by far, one of the most crucial factors in the success of MBOs an in‐depth study focused on the characteristics of buyout managers, the culture of management buyout teams, and influences on behaviours during the transaction. This paper reports one part of the study ‐ that relating to management buyout stressors. The aspect of the transaction that generates the most stress was found to be time pressure. Generally, however, the results suggest that stressors, identified by the literature and through focus groups, were not perceived as stressful by this group of buyout managers. Related to this, was the finding that the majority were able to cope with these stressors. Regression analysis indicated that a key factor in manager’s ability to cope was the open/interactive nature of the management team culture.

Details

Management Decision, vol. 36 no. 10
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 1 November 2004

Charlotte J. Wright and Liming Guan

Using a matching approach and multivariate logit analysis we determine that management of firms involved in MBOs more frequently chose income increasing accounting policies than…

1724

Abstract

Using a matching approach and multivariate logit analysis we determine that management of firms involved in MBOs more frequently chose income increasing accounting policies than did a matched sample of non‐MBO firms. The results provide support for the managerial economic incentives hypothesis as a motivation for accounting policy choices. The results of the study are consistent with a number of earlier studies such as Groff and Wright (1989), Hagerman and Zmijewski (1979) and Zmijewski and Hagerman (1981) that also find support for the managerial economic incentives hypothesis for accounting choices. DeAngelo (1986), Perry and Williams (1994) and Wu (1997) find evidence supporting the hypothesis that, in order to reduce the cost of acquiring shares from current stockholders, managers seeking to take firms private make income decreasing discretionary accruals in the period immediately prior to the MBO. In testing this theory DeAngelo (1986), Perry and Williams (1994) and Wu (1997) focus on the overall effect of a pool of business decisions and accruals made in the year immediately prior to the MBO. We theorize that managements’ self‐serving behavior begins far in advance of the actual MBO. The final terms of the MBO are the culmination of numerous actions and choices by management over a period longer than one year. In testing our hypotheses we focus on three specific accounting policy choices made over a period of three years leading up to an MBO and find significant evidence of self‐serving behavior through the use of income increasing accounting policy choices.

Details

Managerial Finance, vol. 30 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 April 1996

Charlie Weir

Analyses the link between management buyouts (MBOs) and the entrepreneurial process. Argues that, at least initially, a management‐based explanation of entrepreneurial activity is…

1335

Abstract

Analyses the link between management buyouts (MBOs) and the entrepreneurial process. Argues that, at least initially, a management‐based explanation of entrepreneurial activity is the most appropriate for MBOs. Assesses a number of performance variables to determine the impact of the MBOs. Finds that there is a general improvement in performance suggesting that MBOs provide management with entrepreneurial opportunities which had previously been unavailable to them. Concludes that there is evidence to support the MBO‐entrepreneur link and that MBOs do encourage entrepreneurial activity.

Details

Management Decision, vol. 34 no. 3
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 1 July 1991

Abbass F. Alkhafaji

Management′s perception towards buyouts, the impact that variousforms of the buyout are having on the marketplace, and how buyoutpopularity effects the economy are discussed. The…

Abstract

Management′s perception towards buyouts, the impact that various forms of the buyout are having on the marketplace, and how buyout popularity effects the economy are discussed. The buyout has also become a popular alternative for entrepreneurs, who in the past have founded companies rather than buying existing firms. The advantages that buyouts offer the entrepreneur compared to the traditional approach are also discussed. A survey of managers who have been involved in buyouts is discussed and correlated to current literature involving the new entrepreneur and his/her involvement in the buyout phenomenon.

Details

Management Decision, vol. 29 no. 7
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 3 July 2009

Arman Kosedag, Jamshid Mehran and Jinhu Qian

The purpose of this paper is to examine the informational asymmetry (informational advantage of managers) in leveraged buyout (LBO) transactions.

Abstract

Purpose

The purpose of this paper is to examine the informational asymmetry (informational advantage of managers) in leveraged buyout (LBO) transactions.

Design/methodology/approach

Unlike previous studies of informational asymmetry in LBOs, this research uses a set of reverse‐LBO and re‐LBO firms. The paper proposes and empirically tests three hypotheses that draw on the informational advantage of managers in LBOs. Specifically, the value gain (VG) realized by the reverse‐LBO firms is compared with that realized by a control sample of firms; the wealth distribution between managers and pre‐buyout shareholders is studied; and, finally, the performance of re‐LBO firms relative to reverse‐LBO firms is evaluated.

Findings

The results do not support the view that managers use buyouts to exploit their informational advantage. Specifically; the performance of LBO firms under the private ownership is comparable to those of matching public firms; the management team's return in a LBO deal is not significantly more than pre‐buyout shareholders’ return; and repeating reverse‐LBO firms (re‐LBOs) do not necessarily perform better than the non‐repeating reverse‐LBO firms.

Originality/value

While reverse‐LBOs have been investigated to some extent in the prior literature, studies on re‐LBOs are quite scant – although these transactions offer a new and interesting avenue to examine the motivations behind LBOs in general. The use of the entire LBO − reverse‐LBO − re‐LBO cycle in testing the informational advantage of managers is a novelty. It is hoped that re‐LBOs will attract the amount of attention they deserve as these firms may offer interesting means to reinvestigate commonly debated theories of corporate finance.

Details

Managerial Finance, vol. 35 no. 8
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 February 1992

Michael Pogue

Reports on an attempt to launch an unprecedented management buyout,which was seen to have important repercussions for the whole of the£12 billion British buyout industry, and to…

Abstract

Reports on an attempt to launch an unprecedented management buyout, which was seen to have important repercussions for the whole of the £12 billion British buyout industry, and to represent a “test case” regarding the viability and suitability of American‐style leverage deals in Britain. Describes the problems that arose as Magnet plc′s debt increased and its ability to service its interest obligations was undermined.

Details

Management Decision, vol. 30 no. 2
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 12 March 2021

Timothy A. Kruse

This paper is a clinical examination of the October 2013 Management Buyout of Dell Inc. by founder Michael Dell and Silver Lake Partners for a total consideration of $13.88 per…

Abstract

Purpose

This paper is a clinical examination of the October 2013 Management Buyout of Dell Inc. by founder Michael Dell and Silver Lake Partners for a total consideration of $13.88 per share. The proposed transaction was targeted by shareholders unhappy with the deal price and voting framework. Various shareholders went on to file an appraisal suit. Examining these events yields insights into shareholder rights issues in a major transaction.

Design/methodology/approach

The paper examines events surrounding the acquisition including the negotiation process, go-shop period, shareholder activist demands for a higher price, shareholder voting and the subsequent appraisal trial and appeal.

Findings

Despite suggesting Dell's board fulfilled its fiduciary duties, Delaware Vice Chancellor Travis Laster awarded petitioning shareholders $17.62 per share, a 27% premium to the final deal consideration. This article draws on Laster's decision and research examining topics raised by the surrounding events to argue minority shareholder interests were not sufficiently protected.

Research limitations/implications

The Dell transaction represents only one data point. Moreover, Vice Chancellor Laster's decision was reversed on appeal.

Originality/value

Nevertheless, the paper discusses the nuances surrounding many issues of interest to practitioners involving large going private transactions. It could also be used to illustrate many “real world” perspectives in an advanced corporate finance or mergers and acquisitions class.

Details

Managerial Finance, vol. 47 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 September 2005

Evangelos Koumanakos, Costas Siriopoulos and Antonios Georgopoulos

To investigate whether acquiring firms listed in the Athens Stock Exchange, that completed mergers and acquisitions during the period 2001‐2003, tend to manipulate accounting…

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Abstract

Purpose

To investigate whether acquiring firms listed in the Athens Stock Exchange, that completed mergers and acquisitions during the period 2001‐2003, tend to manipulate accounting earnings upward prior to the initiation and completion of the transaction.

Design/methodology/approach

The focus is on discretionary accruals as a measure of managers' earnings manipulation. To estimate discretionary and non‐discretionary components of total accruals the time series Jones model is adopted.

Findings

Results provide weak evidence of biased accruals reported by managers in the year preceding the announcement and the completion of the deal. The results seem to agree with those of Erickson and Wang who found no evidence of pre‐merger earnings management by a sample of acquiring firms that were involved in cash mergers.

Research limitations/implications

The model applied, even if it is considered effective in discriminating abnormal from normal accruals, has been shown to have certain deficiencies, while simultaneously the time series data and number of firms used here could be considered as small. Within the aforementioned limitations further research could examine the effect of mergers and acquisitions in the stock price of the acquiring of target firms and the possibility of earnings management by target firms, since target managers may have different incentives to manipulate earnings.

Practical implications

Findings are of particular interest to Greek regulators for policy‐making purposes as well as to investors in the Greek capital market.

Originality/value

To the best of one's knowledge this is the first study to examine earnings management by acquiring firms in the European capital market context.

Details

Managerial Auditing Journal, vol. 20 no. 7
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 June 1991

P.S. Sudarsanam

Takeovers play an important role in the allocation of re‐sources to the most efficient uses and represent a mech‐anism by which corporate resources are transferred from one…

Abstract

Takeovers play an important role in the allocation of re‐sources to the most efficient uses and represent a mech‐anism by which corporate resources are transferred from one management team to another (Jensen and Ruback, 1983). A result of this managerial displacement is expected to be an increase in shareholder wealth. This argument pre‐supposes that managers attempting takeovers are motivated to create value for shareholders. This picture of managerial disinterestedness in the service of share‐holders ignores potential agency conflicts between man‐agers and shareholders. When faced with a takeover bid, which if successful may lead to its own displacement, the management team at the target may devise ways of frus‐trating the bid.

Details

Managerial Finance, vol. 17 no. 6
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 October 2003

Brian Rooks

A profile of Birkby's Plastics, a UK‐based leading European plastic moulding company that has successfully completed a management buy‐out. Birkby's supplies to the major…

Abstract

A profile of Birkby's Plastics, a UK‐based leading European plastic moulding company that has successfully completed a management buy‐out. Birkby's supplies to the major automotive OEMs and Tier One manufacturers and to leading business machine OEMs. It is more than a standard trade moulder and has developed a number of innovative processes, such as in‐mould welding (IMW) and in‐mould textiles (IMT), which significantly reduce cost and improve product quality. IMW enables hollow vessel components to be produced complete within the moulding machine and IMT drastically cuts the time of manufacturing textile‐wrapped car trim components. Robotics plays a major role in all of Birkby's operations and together with its process technology is helping the company to compete with low labour cost regions and maintain production in the UK.

Details

Industrial Robot: An International Journal, vol. 30 no. 5
Type: Research Article
ISSN: 0143-991X

Keywords

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