Search results

1 – 10 of over 1000
To view the access options for this content please click here
Book part

Christian Landau

We investigate whether active involvement of private equity firms in their portfolio companies during the holding period of a later-stage private equity investment is…

Abstract

We investigate whether active involvement of private equity firms in their portfolio companies during the holding period of a later-stage private equity investment is related to increased levels in operating performance of these companies. Our analysis of unique survey data on 267 European buyouts and secondary performance data on 29 portfolio companies using partial least squares structural equation modeling indicates that private equity firms, that is, their board representatives, can increase operating performance not only by monitoring the behavior of top managers of portfolio companies, but also by becoming involved in strategic decisions and supporting top managers through the provision of strategic resources. Strategic resources, in particular expertise and networks, provided by private equity firm representatives in the form of financial and strategic involvement are associated with increases in the financial performance and competitive prospects of portfolio companies. Operational involvement, however, is not related to changes in operating performance. In addition to empirical insights into the different types of involvement and their effects, this chapter contributes to the buyout literature by providing support for the suggested broadening of the theoretical discussion beyond the dominant perspective of agency theory through developing and testing a complementary resource-based view of involvement. This allows taking into account not only the monitoring, but also the more entrepreneurial supporting element of involvement by private equity firms.

To view the access options for this content please click here
Article

Mike Wright, John Coyne and Ken Robbie

Not only has the number of management buyouts increased rapidly in the last few years, but the actual size of the buyouts has also significantly increased.

Abstract

Not only has the number of management buyouts increased rapidly in the last few years, but the actual size of the buyouts has also significantly increased.

Details

Management Decision, vol. 26 no. 4
Type: Research Article
ISSN: 0025-1747

To view the access options for this content please click here
Article

Lokman Tutuncu

The purpose of this paper is to examine the effect of pre-acquisition earnings management on the performance of private firm management buyouts.

Abstract

Purpose

The purpose of this paper is to examine the effect of pre-acquisition earnings management on the performance of private firm management buyouts.

Design/methodology/approach

The study examines 291 UK private firms acquired by their managers between 2004 and 2012. Earnings management is investigated by means of cross-sectional discretionary accruals models, and estimated discretionary accruals are regressed on performance changes in the three years following acquisition.

Findings

Management buyouts of private firms are preceded by earnings overstatement and followed by performance deterioration. Private equity sponsored firms engage less in earnings management and remain more profitable than non-sponsored buyouts. Upward earnings managers cease to outperform industry after second post-buyout year, while aggressive earnings managers do not outperform industry at all. Discretionary total accruals are inversely associated with performance changes in the three years after buyout, and explain over 4 per cent of the changes in performance.

Research limitations/implications

Pertinent to the utilisation of private firms and their exemption from publishing cash flow statement, the study relies on accrual-based models for tests of earnings management.

Originality/value

The paper contributes to the mergers and acquisitions literature and value creation debate in buyouts by providing the first tests of earnings management and post-acquisition performance in private firm management buyouts.

Details

Managerial Finance, vol. 45 no. 10/11
Type: Research Article
ISSN: 0307-4358

Keywords

To view the access options for this content please click here
Article

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…

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

Keywords

To view the access options for this content please click here
Article

Ann-Kristin Achleitner, Christian Figge and Eva Lutz

The purpose of this paper is to identify specific drivers of value creation in secondary buyouts. While this type of private equity deal has risen in importance in recent…

Abstract

Purpose

The purpose of this paper is to identify specific drivers of value creation in secondary buyouts. While this type of private equity deal has risen in importance in recent years, it is not yet well understood. Through an in-depth analysis of the acquisition of Brenntag by BC Partners, we develop propositions on the value creation profile of secondary buyouts.

Design/methodology/approach

We use a single case study design to explore the information-rich context of a secondary buyout. The Brenntag case epitomizes the development of a company from forming part of a large conglomerate to being private-equity owned after the primary and secondary buyout, to its final disposition of public listing. Our analysis is based on ten semi-structured interviews with key protagonists and observers, as well as analysis of primary company data and additional secondary data sources.

Findings

We propose that even if the investment management and monitoring skills of the primary and secondary private equity group are similar, there is still potential to realize operational improvements in a secondary buyout, due to either early exit of the primary private equity group or measures that further enhance management incentives. In addition, the Brenntag case shows that low information asymmetries can lead to higher leverage and that opportunities for multiple expansions are limited in secondary buyouts.

Originality/value

While a secondary buyout has become a common exit route in recent years, we are the first to undertake an in-depth case analysis of a secondary buyout. Our study helps researchers and practitioners enhance their understanding of drivers behind the value creation profile of secondary buyouts.

Details

Qualitative Research in Financial Markets, vol. 6 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

To view the access options for this content please click here
Article

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…

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

Keywords

To view the access options for this content please click here
Book part

Kamal Ghosh Ray and Sangita Ghosh Ray

Management buyout (MBO) is a specialized form of acquisition with different motives. Sometimes, there are initiatives taken by the senior management to bailout the firm…

Abstract

Management buyout (MBO) is a specialized form of acquisition with different motives. Sometimes, there are initiatives taken by the senior management to bailout the firm from sickness. The predominant agency theory focuses only on the governance issues in the MBO firms and this theory can be applied to understand how managerial discretion can play vital roles in mitigating value destruction in the post-MBO firm. A CEO-led MBO is presumed to be greed-driven (Bebchuk, L., Cremers, M., & Peyer, U. (2011). The CEO pay slice. Journal of Financial Economics, 102, 199–221.). But a senior management team-led MBO is said to be a socialistic move. By default, MBOs are debt-driven, unless the buying management team is financially affluent, which may be rare, considering the price for the buyout. Private equity (PE) players play a dominant role in providing and or arranging funds in the form of equity and or debt. There is a notion that the PE investors help promote entrepreneurial and modern management practices. The MBO target firm has to ensure returning the entire money back to the sponsors within the shortest possible time out of the operational cash flow. Therefore, various issues like identifying a target firm, sourcing mix of finance, MBO price determination, value creation and value delivery to all stakeholders are all important for understanding the subject. This chapter attempts to construct a robust model for structuring MBO to ensure value fairness to all parties involved in the transaction.

Details

Advances in Mergers and Acquisitions
Type: Book
ISBN: 978-1-78560-090-6

Keywords

To view the access options for this content please click here
Article

Elyse Zavar and Ronald R. Hagelman III

The Federal Emergency Management Agency provides guidelines for the management of open space created through property acquisition (buyouts); however, land use decisions…

Abstract

Purpose

The Federal Emergency Management Agency provides guidelines for the management of open space created through property acquisition (buyouts); however, land use decisions are primarily left to local governments manifesting in a variety of uses. The purpose of this paper is to provide a land use assessment of buyout sites, to describe the changes in those uses that have occurred during a ten-year period from 1990 to 2000, and to offer an assessment of management approaches employed across these sites.

Design/methodology/approach

Using a mixed-methods approach consisting of a land use classification survey and a semi-structured questionnaire of floodplain managers, this study explores the land use trends at buyout sites, diverse approaches local governments take in managing the open spaces created through floodplain buyout programs, and the successes and challenges communities face in open space management.

Findings

Results indicate strong support from floodplain managers for property acquisition and several cases emerged where communities put their newly acquired public land to creative uses. However, the opportunity to leverage these properties for greater public values is largely being missed, primarily because of limited funding.

Practical implications

The analysis indicates strong support among floodplain managers for the buyout approach; however, additional resource-sharing and funding opportunities are needed to increase the utility of buyout properties.

Originality/value

By evaluating the long-term management strategies floodplain managers utilize on buyout sites, this study adds to an underrepresented area of scholarship and is of value to practitioners, government officials, and academics.

Details

Disaster Prevention and Management, vol. 25 no. 3
Type: Research Article
ISSN: 0965-3562

Keywords

To view the access options for this content please click here
Article

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

Keywords

To view the access options for this content please click here
Article

Michael R. Braun and Scott F. Latham

This study aims to examine the governance structure of the firm undergoing a complete buyout cycle (reverse leveraged buyout). Its purpose is to empirically explore the…

Abstract

Purpose

This study aims to examine the governance structure of the firm undergoing a complete buyout cycle (reverse leveraged buyout). Its purpose is to empirically explore the evolution of corporate board structures as a unique source of value creation, in addition to the agency mechanisms of the discipline of debt and incentives of equity participation.

Design/methodology/approach

The authors rely on agency theory and the resource dependence perspective to develop sets of hypotheses that examine changes in the board composition of 65 R‐LBOs and 65 matched continuing firms spanning a 25‐year period (1979‐2004).

Findings

The empirical results reveal numerous insights about why R‐LBOs go private, to what extent boards restructure during the buyout phase, and how those changes relate to firm performance. Taken together, the findings give strong credence to the argument that boards represent a supplemental source of value creation in the buyout process.

Research limitations/implications

For scholars, the study presents a platform for further inquiry into the role of boards of directors in R‐LBOs as well as the inclusion of resource dependence theory to inform on the phenomenon.

Practical implications

The study helps to address this new source of value creation for practical interest. It offers a benchmark for buyout firms to compare their board characteristics by establishing linkages between pre‐buyout deficiencies, post‐buyout modifications, and post‐SIPO performance.

Originality/value

The results shift scholarly attention away from the structural governance tools to the group dynamics of the board. The findings call into question the restricted attention given by buyout researchers to leverage and ownership as value drivers by prompting a closer evaluation of the relationship between buyout board structures and related structuring of debt and managerial equity participation. Furthermore, the inclusion of the resource‐dependency perspective alongside agency theory as an explanatory theory allows for a richer account of the LBO phenomenon and its sources of value creation.

Details

Management Decision, vol. 47 no. 5
Type: Research Article
ISSN: 0025-1747

Keywords

1 – 10 of over 1000