Kevin Amess

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

Agency theory has focused on buyouts as a governance and control device to increase profitability, organizational efficiency, and limited attention to growth. A strategic entrepreneurship view of buyouts incorporates upside incentives for value creation associated with growth as well as efficiency gains. In this paper, we develop the complementarity between agency theory and strategic entrepreneurship perspectives to examine the performance implications for different types of buyouts. Further, we study how the involvement of private equity (PE) firms is related to the performance of the post–buyout firm. These issues are examined for a sample of 238 PE–backed buyouts in the UK between 1993 and 2003. Implications for theory and practice are suggested.

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

Private equity and management buyouts have been the subject of considerable controversy. There have been recent calls for more systematic evidence on the impact of private equity and buyouts. Yet there is already an extensive body of scientific evidence stretching back over the past two decades that provides a platform for understanding the current context. This article summarises what we know about private equity from a comprehensive review of approximately 100 studies from around the world under the following headings: the returns to investors; profitability and productivity; the drivers of effects on profitability and productivity; the impact on employment and wages; growth and investment strategies; the extent to which high leverage is associated with failure; the generation of gains from asset disposals (asset stripping); the reselling of assets within short periods of time (asset flipping); and whether the effects persist after private equity firms have exited. This scientific evidence indicates that private equity and buyouts bring particularly important economic and social benefits. What we would like to know about private equity and buyouts is discussed under five broad headings: the difference between the second wave of deals and the first wave; the nature of the fund and its impact on returns; the distinction between secondary and primary buyouts; the failure rate of buyouts; and the tax implications. Implications for policy and practitioners are also discussed.

Management Buyouts and Firm-Level Productivity: Evidence from a Panel of UK Manufacturing Firms

This paper presents an empirical investigation of the productivity effects of UK management buyouts (MBOs) over the period 1986-97. It is the first study to use an augmented production function approach in order to determine and quantify: the Hicks-neutral productivity, the marginal productivity of labour, and the marginal productivity of capital effects of MBOs. The main findings are consistent with MBOs providing incentive and control systems that lead to improved firm-level productivity in the post-buyout organisation via reduced agency costs, debt bonding, and monitoring by buyout specialists. Copyright 2002 by Scottish Economic Society.

The Impact of Private Equity and Buyouts on Employment, Remuneration and other HRM Practices

In this article we consider the impact of private equity and buyouts on employment, remuneration, and other human resource management practices by reviewing and synthesizing existing studies. We show that the impact tends to differ between buyouts and buy-ins, and argue that private equity is a heterogeneous phenomenon. Several issues that would benefit from further research are identified including the relative impact on employment, terms and conditions and job quality for managerial and non-managerial employees.

What are the Wage and Employment Consequences of Leveraged Buyouts, Private Equity and Acquisitions in the UK?

This paper provides the first comparative examination of the consequences of leveraged buyouts (LBOs) and traditional corporate acquisitions on employment and wages using a uniquely constructed panel data set covering the period 1996-2006. Employing propensity score matching combined with difference-in-differences analysis, the key findings are: (1) related and unrelated acquisitions have employment consequences of a similar magnitude, (2) related and unrelated acquisitions have the largest negative impact on employment followed by non-private equity backed LBOs, (3) acquisitions in the same industry cause an increase in wages, and (4) private equity backed LBOs have no significant impact on either employment or wages.

Private equity firm experience and buyout vendor source: What is their impact on efficiency?

Using a dataset comprising 88 Private Equity (PE) backed Leveraged Buyouts (LBOs) completed and exited during the period 1999–2008, this study sheds new light on the impact of buyout vendor source and PE investor experience on post-buyout efficiency during the first 3years after the transaction. There are three main findings. First, we observe increases in post-buyout efficiency over time, although LBOs from different vendor source differ in terms of post-transaction efficiency levels and improvement trajectories. Private and divisional buyouts are more efficient than the average. Divisional buyouts show higher efficiency improvements than private and secondary buyouts. Secondary buyouts remain below the average. Second, multivariate analyses suggest a positive and significant effect of PE firm experience on post-buyout efficiency. Finally, the observed efficiency patterns seem to be convex, suggesting the major improvements happen in the first 2years after the transaction.

Corporate Governance Structures and the Comparative Advantage of Credit Unions

The paper examines the economics of the mutual organisation and the stakeholder models of corporate governance with its emphasis on informal contracts, trust and co-operation. These concepts are important in informal governance systems such as mutuals because they economise on transaction costs and promote efficient exchange. In this respect, the paper argues that mutuals have a comparative advantage compared with joint stock banks in ameliorating problems associated with adverse selection and moral hazard. These comparative advantages, however, are enhanced in small mutuals such as credit unions which focus on relatively small memberships with a common bond. The paper concludes by suggesting that although the credit union movement will not necessarily develop along similar lines to the building societies, it does have a future in providing banking facilities to the relatively poor and disenfranchised sectors of society.

Brexit, Private Equity and Management

We analyse the expected impact of Brexit on private equity and its implications for management research. Specifically, we explore the implications for PE funds and funding, and at the portfolio firm level with respect to employment and performance.

DO STOCK MARKETS VALUE EFFICIENCY

An empirical model determining the relationship between changes in firm-level productivity and changes in firm value is estimated using an unbalanced panel of 706 public limited companies observed over the period 1996–2002. We find a positive relationship between efficiency and the market value of manufacturing sector firms controlling for traditional accounting measures of performance such as earnings per share and the return on capital employed. This evidence is consistent with the stock market valuing the adoption of better management practices that lead to better resource utilisation. By contrast, we find no such evidence for service sector firms.

The impact of digital start-up founders’ higher education on reaching equity investment milestones

This paper builds on human capital theory to assess the importance of formal education among graduate entrepreneurs. Using a sample of 4953 digital start-ups the paper evaluates the impact of start-up founding teams’ higher education on the probability of securing equity investment and subsequent exit for investors. The main findings are: (1), teams with a founder that has a technical education are less likely to remain self-financed and are more likely to secure equity investment and to exit, but the impact of technical education declines with higher level degrees, (2) teams with a founder that has doctoral level business education are less likely to remain self-financed and have a higher probability of securing equity investment, while undergraduate and postgraduate business education have no significant effect, and (3) teams with a founder that has an undergraduate general education (arts and humanities) are less likely to remain self-financed and are more likely to secure equity investment and exit while postgraduate and doctoral general education have no significant effect on securing equity investment and exit. The findings enhance our understanding of factors that influence digital start-ups achieving equity milestones by showing the heterogeneous influence of different types of higher education, and therefore human capital, on new ventures achieving equity milestones. The results suggest that researchers and policy-makers should extend their consideration of universities entrepreneurial activity to include the development of human capital.