Strategic redirection in large management buyouts: The evidence from post‐buyout restructuring activity

Abstract

This study examines the nature of post‐transaction restructuring activities for 32 large U.S. corporations that underwent management buyouts between 1983–89. This study (i) provides evidence on the extent and type of divestment and acquisition activities under private ownership; (ii) documents the outcomes associated with MBOs and the longevity of the buyout organization; and (iii) investigates the claim that buyouts are primarily mechanisms for breaking up public corporations and selling the pieces to related acquirers. The balance of the evidence indicates that restoring strategic focus is an essential function of the buyout for these large firms. However, the evidence also indicates that the buyout organization does continue to operate significant parts of the prebuyout firm. By far the majority of firms continue to meet their debt obligations satisfactorily during the buyout phase. Finally, the evidence indicates that asset sales to related acquirers derive more from efficiency considerations than market power.

Agency, Strategic Entrepreneurship, and the Performance of Private Equity–Backed Buyouts

“…In contrast to managers in divisions of larger corporations, the initial buyout involves equity stakes by management, control by private equity firms, and pressure from leverage. Effort to reduce costs in buyouts is usually focused on the first two to three years after the buyout (Seth & Easterwood, 1993;Wiersema & Liebeskind, 1995). Beyond this period, it may be difficult to obtain further cost reductions and efficiency improvements.…”

Junk bonds and corporate America: Revisiting the Yago/Brock debate

“…NOTES 1. Other useful articles reaching the same general conclusion are Lichtenberg and Siegel 1990, Smith 1990, Seth and Easterwood 1993, and Healy, Palepu, and Ruback 1992. This is the figure cited by Kaplan and Stein 1993, 318 The 50 percent figure is plucked out of the air.…”

The economic impact of private equity: what we know and what we would like to know

“…US evidence from the 1980s suggests that larger buyouts involving P2Ps engage in substantial divestment of assets Bhagat, Shleifer, and Vishny 1990;Seth and Easterwood 1993;Wiersema and Liebeskind 1995). The extent of asset sales is significantly greater for P2Ps than for buyouts of divisions; however, asset sales among UK buyouts completed in the 1980s was much less than in the US .…”

“…The extent of asset sales is significantly greater for P2Ps than for buyouts of divisions; however, asset sales among UK buyouts completed in the 1980s was much less than in the US . Seth and Easterwood (1993) suggest that divestiture and acquisition decisions for large US MBOs are motivated by a focus on related business activities. Wiersema and Liebeskind (1995) do not restrict their analysis to large buyouts and find that both the size and scope of the firm decline post-buyout.…”